Transition finance: Where business meets green growth

Business Times

2 days ago

RISING heat, floods and food price shocks – these are not distant concerns, but the everyday realities of climate change confronting people globally. This is especially so in Asia, which has some of the most climate-vulnerable communities in the world.
The tension between delivering inclusive growth to improve people's lives and protecting the environment to ensure future generations' needs can be met is at the heart of Asia's climate paradox. It is also why transition finance – aimed at enabling decarbonisation in high-emitting sectors – is gaining ground as an investment theme.
'Unlike green finance, which focuses on projects that are already climate-friendly, transition finance enables step-by-step change,' says Helge Muenkel, chief sustainability officer at DBS. 'It supports the rewiring of systems, including those that aren't green yet – but can become greener over time.'
Importantly, transition financing is a tool not just for decarbonisation, but for broader business transformation. And it also drives climate adaptation outcomes – helping businesses and communities build resilience as they transition, Muenkel added.
' Unlike green finance, which focuses on projects that are already climate-friendly, transition finance enables step-by-step change. '
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Helge Muenkel, chief sustainability officer, DBS
One key application for transition finance is in the power sector, including coal-fired power which is responsible for around 20 per cent of global greenhouse gas emissions, making it the single largest source of emissions globally. There are about 5,000 operational coal-fired power plants in Asia, many of which are still relatively young, with years or even decades left in their operating life. A recent study by Global Energy Monitor shows that by the 2040s, the average age of a coal power plant in South-east Asia will be about 28 years. This figure varies by country; for example, the average age of a coal plant in Thailand will be 39 years, in Indonesia 27 years, and in the Philippines 28 years. New coal capacity is also being added, with Asean countries currently having close to 30 gigawatts of coal capacity in various stages of development. This presents a complex challenge.
'Decarbonising the power sector is not about flipping a switch overnight,' Muenkel says. 'We are running an ultra-marathon, not a sprint. But we do need to act with urgency – and finance plays a vital role.'
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Helge Muenkel, chief sustainability officer at DBS. PHOTO: DBS
Since 2021, DBS has reduced its thermal coal exposure by more than half from $2.7 billion to $1.3 billion in 2024.
Shilpa Gulrajani, head of sustainable finance at DBS' Institutional Banking Group, explains: 'Reducing emissions is essential. But for many countries, energy security and affordability remain pressing concerns. Solutions must be grounded in local realities and balance environmental, social and economic priorities.'
Therefore, instead of abrupt shutdowns of critical infrastructure, a more pragmatic approach involves managed coal phase-outs, including the planned early shutdown of coal-fired power plants in the region.
DBS co-leads a working group in the Monetary Authority of Singapore-convened Transition Credits Coalition (Traction), which aims to support the early and managed phaseout of thermal coal power plants across the region by helping to create a new financial tool: high integrity transition credits.
Natural gas continues to play a role in South-east Asia's energy mix as a transitional energy source to support the phaseout of coal and expansion of renewables and energy storage that are not yet a commercially viable option in specific parts of Asia. This applies to the extent that stringent environmental safeguards are met – including robust methane leakage mitigation. This approach supports a responsible, time-bound pathway from coal, while laying the groundwork for longer-term decarbonisation.
Catalysing real-world change
Transition finance is also about supporting real economy hard-to-abate sectors like steel, cement and aviation – integral to economic development but among the most challenging to decarbonise – as they retool operations, upgrade technology and adapt to a low-carbon future.
This includes supporting the scale up of 'enabling activities' – projects that may not directly reduce emissions but play a critical role in facilitating wider decarbonisation in a value chain. For instance, supplying low-carbon materials to electric vehicle producers or providing storage solutions for renewables can accelerate the transition across entire value chains.
' For many countries, energy security and affordability remain pressing concerns. Solutions must be grounded in local realities and balance environmental, social and economic priorities. '
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Shilpa Gulrajani, head of sustainable finance, DBS' Institutional Banking Group.
In 2025, DBS enhanced its Transition Finance Framework (TFF), materially increasing the number of activities the bank will support. The new TFF also provides for robust governance and transparency for assessing such opportunities. The framework provides greater clarity to clients and stakeholders on eligible transition financing activities, and helps unlock capital for sectors that need to decarbonise but fall outside of conventional green taxonomies.
'This transformation requires financing solutions for activities that often fall outside of existing taxonomies,' says Gulrajani. 'We strengthened our framework to give clients and the broader industry clearer guidance on what a credible transition in Asia can look like, even as global standards evolve.'
The enhanced TFF leverages the bank's deep industry knowledge, combined with the sustainable finance team's transition expertise, to help clients better manage risks and identify opportunities amid their decarbonisation journey. In addition, the framework also sets expectations on transition plans and available financial products, supporting a more structured and transparent transition financing ecosystem across the region.
'We work closely with clients to ensure their transition plans and timelines are both pragmatic and rigorous, and that capital is deployed where it can drive real decarbonisation.'
As financial institutions ramp up support for transition financing, an increase in their financed emissions in the near term is to be expected.
This rise reflects the practical realities of enabling real-economy shifts, especially in hard-to-abate sectors where emissions reductions take time, says Gulrajani. It is also a signal that capital is being directed where it is most needed to achieve long-term transformation.
'At DBS, we are willing to take on this risk because we believe it is a necessary part of enabling the transition,' she adds.
The future of transition finance
Shilpa Gulrajani, head of sustainable finance at DBS' Institutional Banking Group. PHOTO: DBS
According to DBS, transition finance is still in its early stages in Asia, but momentum is building. As one of the region's earliest movers, the bank has developed internal frameworks, supported industry partnerships and pioneered innovative financial instruments to accelerate change.
DBS has also been co-leading the transition finance working group of the Singapore Sustainable Finance Association, which aims to position Singapore as a regional transition finance hub.
'We are helping create a broader ecosystem where capital, policy and innovation come together,' says Muenkel. 'Asia has the innovation, talent and the impetus to act. With the right collaboration, we can lead the world in this journey.'
Complexities in the global landscape have raised questions on whether sustainability can continue delivering both impact and returns. Still, climate change continues and for DBS, the answer is clear.
'Notwithstanding recent geopolitical developments affecting sustainability globally, climate change will further accelerate, affecting the communities we operate in, and needs action,' says Muenkel. 'DBS aims to be the best bank for a better world – and that means staying the course even in challenging times. We are here for the long haul.'
Find out more about the DBS Transition Finance Framework .