ASEAN framework seen building confidence in green finance
CONFIDENCE in supporting Southeast Asia’s energy transition is expected to grow following the issuance of the second version of an ASEAN framework which is expected to unlock green financing for phasing out coal-fired power plants, Sustainable Fitch said in a report.
The ASEAN Taxonomy for Sustainable Finance adapts global sustainability standards to suit local conditions. Under the taxonomy, coal-fired power plants are eligible for green financing if they are retired early, with the cap on their operating life set at 35 years.
“Coal accounts for about half of southeast Asia’s energy mix, but the region faces pressure to reduce reliance on the carbon-intensive fossil fuel,” according to Sustainable Fitch, a specialist ESG unit of the Fitch Solutions group.
It said transition efforts are high on the region’s list of sustainability priorities.
The framework ”serves as a powerful signaling tool that transition efforts are high on the region’s list of sustainability priorities and helps to define transition activities and finance in the region,” Sustainable Fitch said.
“Sustainable Fitch expects this localized approach to promote more regional environmental, social and governance (ESG)-labeled debt issuances and support the funding needs for a scalable energy transition,” it said.
The report said that the ASEAN Taxonomy will help build confidence in the region, as it is an adaptation of the EU Taxonomy, which requires an exit from coal to access financing.
“As a result, we expect these to encourage more transition financing via a combination of green, sustainability and sustainability-linked bonds and loans in the short to medium term,” the report said.
According to the report, from the period of 2000 to 2019, the Philippines total climate financing is composed of debt accounting 89.9% and grants at 9.4%.
Citing a report from the International Renewable Energy Agency, Sustainable Fitch said that Southeast Asia will need about $29.4 trillion in financing up to 2050 to achieve full renewable power generation.
“With an additional resource to help global investors align their portfolios with meaningful transition and encourage growth in renewables, the potential flow of institutional capital could also contribute to structural economic reform in the long-term by helping countries diversify energy sources,” the report said. — Ashley Erika O. Jose