MANILA -The Association of Southeast Asian Nations (Asean) has updated its framework for sustainable financing by accommodating coal phaseout projects for funding, a pioneering albeit contrarian move that might turn out to be a model for other regions, according to Sustainable Fitch.
According to the Fitch Solutions subsidiary, the second version of the Asean Taxonomy for Sustainable Finance issued in March shows how emerging markets can move toward their climate goals by “adapting global sustainability standards to fit the local context.”
Sustainable Fitch was expecting this to promote more regional environmental, social and governance-labeled debt issuances while supporting funding needs for a scalable energy transition.
The Abu Dhabi-based International Renewable Energy Agency estimated that Southeast Asia would need $29.4 trillion in financing up to 2050 to achieve 100-percent renewable power generation.
Currently, Southeast Asia is one of the most coal-dependent regions globally, with Indonesia and the Philippines considered as having the greatest challenge in weaning themselves off the carbon-rich fuel.
The updated Asean financing framework states that coal plants are eligible for green financing as long as they adhere to a dedicated timeline for early retirement, capped at a maximum 35 years.
“This serves as a powerful signaling tool that (energy) 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.
The research and consultancy firm noted that investors have typically been cautious of “transition financing” because of the lack of a universal definition, uncertainty around corporate transition targets and the absence of recognized standards.
“The added guidance (on the updated framework) will also address greenwashing issues by encouraging issuers who seek to voluntarily align with the taxonomy to demonstrate that their projects meet the criteria set out before seeking investment,” it added.
Sustainable Fitch said that from 2000 to 2019, 89.9 percent of climate financing extended to the Philippines was in the form of debt, 9.4 percent through grants and the rest through equity.