While many countries in Asia have introduced transition criteria in their taxonomies in recent years, the huge divergence in approaches risks impeding cross-border financing towards the decarbonisation of high-emitting sectors, according to a report by Energy Shift Institute (ESI).
In its analysis of the transition finance frameworks across six jurisdictions, the Australia-based thinktank found the widely differing approaches in emissions thresholds, sunset clauses and fossil fuel eligibility exposes investors to transition-washing risks.
As a result, a taxonomy-aligned investment cannot be assumed to be climate-aligned, with ESI warning that banks and investors will still need to carry out their own independent transition credibility screens to assess an asset or a company’s emissions profile and risks associated with being locked into high-carbon assets.
“Without translation tools and clearer regional equivalence, financial institutions run the risk of misalignment when structuring loans and bonds in multiple markets,” said the report’s authors. Coal-related infrastructural upgrades in Indonesia, China and Japan, for instance, are likely to fail transition screens in most other markets.
Among the Asian markets studied, only Singapore and Thailand currently include emissions trajectories and sunset clauses for existing gas power within their respective transition pathways.
The report also pointed out that despite both countries being gas-reliant, no new gas or coal power is permitted under their frameworks, showing it is possible to balance energy security needs with 1.5°C power sector pathways.
Meanwhile, the taxonomies from Indonesia, Malaysia, Japan and China lack clear expectations of declining power emissions over time, “effectively tolerating transition-washing”, it stated. The four countries, for instance, allow for controversial activities such as coal optimisation, ammonia co-firing or unconstrained gas activities to be financed under a “transition” label.
Christina Ng, managing director of ESI and co-author of the report, told Green Central Banking that as a result, risks could be underpriced by Asian banks operating in multiple jurisdictions, when locally-funded upgrades to fossil fuel plants get packaged into transition-labelled bonds or loans and treated as lower-risk due to familiarity with the host-country’s transition rules.
“Globally these assets are actually high risk or misaligned, and the risk has not been mitigated nor priced properly. For central banks, this means their banks may be carrying more transition risk than their internal models suggest,” said Ng. “If ‘transition’ doesn’t reliably mean ‘declining risk’, central banks are flying partially blind.”
While ESI acknowledged that some divergence is inevitable due to the diverse energy systems in Asia, the scale of the divergence threatens to weaken the overall credibility of transition-labelled finance, making transactions slower and riskier.
Transition bond issuances have steadily increased since 2021, driven by the government of Japan and the power sector, according to Environmental Finance data. But it continues to be a sliver of the global sustainable debt market compared to green and sustainability-linked bonds.
The gaps in existing rulebooks have also prompted financial institutions with transition finance products and services, like DBS, Standard Chartered and Deutsche Bank, to release or update their own transition finance frameworks in the past few years.
Investor demand for transition-themed instruments is expected to accelerate, especially on the back of the European Commission’s proposal to introduce a new “transition” category for investment funds last month, as part of its planned overhaul of the Sustainable Finance Disclosure Regulation.
In order to ensure transition finance frameworks actually lead to real-world emissions reductions, the region’s policymakers need to go beyond principles to specify thresholds, sunset clauses and enforceable consequences, wrote ESI.
“Transition finance can accelerate decarbonisation only if ‘transition’ is grounded in measurable, time-bound emission reduction requirements. A transition finance framework is credible not because it exists. It is credible because it changes real-world outcomes.”
Update, 14 January 2026: this article was amended to incluce comments from Christina Ng from the Energy Shift Institute.
This page was last updated January 14, 2026
Written by
Gabrielle See is an award-winning journalist based in Singapore who has written for Green Central Banking since 2025. She has covered the intersections of finance, geopolitics and energy transition in Asia over the past five years for regional and international publications, including CNBC, Eco-Business, Southeast Asia Globe and the Business Times.
