For those who advocate for more timely and meaningful climate finance commensurate with the increasingly cataclysmic impact of climate change, the year 2025 seems to begin on a rocky start. Early last month, 11 large US and Canadian banks exited the Net Zero Banking Alliance (NZBA), the UN-backed coalition of banks that claim their dedication to advancing global net zero goals through financing activities.
Although this North American exodus seems to be a response to a broader anti-ESG political campaign being waged by the current US administration (all Canadian banks that exited the NZBA have significant American presence), one cannot help but wonder whether it portends a broader trend of slowing down the pace and scale of transition finance worldwide.
Before we reach that discussion, we need to understand the meaning of "transition finance".
Although there is no consensus definition, I prefer the one coined by the Rocky Moutain Institute (RMI), a non-profit think tank on sustainable energy. Its definition applies to any investment that "enables decarbonisation of high-emitting entities and/or hard-to-abate sectors where a credible pathway to 1.5C-aligned decarbonization exists."
The next obvious question is: What constitutes a credible transition? Answers depend on which guidelines you follow.
Since 2022, there have been many more transition finance guidelines, ranging from the NZBA's "Transition Finance Guide," the OECD's "Guidance on Transition Finance", and the "Expectations for Real-economy Transition Plans" released by GFANZ (Glasgow Financial Alliance for Net Zero) to the more regional-focused "Asia Transition Finance Guidelines" issued by the Association of Southeast Asian Nations (Asean) Capital Markets Forum.
Indeed, the second version of the "Asia Transition Finance Guidelines" includes a useful summary of existing transition finance guidelines. Released in October last year, existing guidelines are mainly two overarching elements: climate ambition and robustness of ability to deliver.
So what is "climate ambition"? It is a presence that shows an ambitious net zero target that aligns with the objectives of the Paris Agreement. The agreement sets a goal of limiting global warming to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.
The next question is, what exactly is "robustness of ability to deliver"? In summary, the implementation strategy helps investors attain the ambitious climate reduction goal. That strategy must be underpinned by robust, consistent disclosure and monitoring.
While both sound easy, they are difficult for financial institutes to follow.
How can financial institutions tell if the client's decarbonisation plan is "sufficiently ambitious"?
How can they assess whether the client is truly making "tangible progress" without mandatory carbon accounting standards?
Indeed, such problems and challenges are the reaction of many financial institutions in Thailand. These financial institutes gave their opinions to our organization, Fair Finance Thailand (FFT), in a case study that was publicly released last month.
In this case study, we compared climate change reports that six Thai commercial banks disclosed in 2024. These banks use the disclosure standard prescribed by the Task Force on Climate-related Financial Disclosures (TCFD), the world's most widely used standards on climate-related financial disclosures.
In this study, we found that all six banks announced targets for reducing scope 1 and scope 2 despite their different targets.
The two most ambitious Thai banks are Kasikornbank and Siam Commercial Bank, both of which set a scope 1 and 2 net zero target by 2030. TISCO Bank and Government Savings Bank set the corresponding net zero target by 2050. Bangkok Bank and TMBThanachart Bank have not yet declared a net zero target.
For scope 3 which constitutes the bulk of banks' emission (since it includes emissions from customers in the bank's lending and investment portfolios, ie, "financed emissions"), only Kasikornbank, Siam Commercial Bank (SCB), and TISCO Bank have announced scope 3 net zero targets, with varying target years. Among the three banks, SCB is the most ambitious -- setting 2050 as a scope 3 net zero target.
The interviewees identified challenges and problems they encountered when assessing climate risks and preparing climate disclosures. We summarised their problems and recommendations into four groups.
1. Time and resources consumed.
Following TCFD disclosure guidelines costs a lot of time and resources. For example, Kasikorn Bank spent over five years analysing impacts under different climate scenarios before publishing its first climate report. Bank of Thailand spent a lot of time and resources hosting capacity building and training for financial bank officials to understand and assess climate risks and emission reduction targets.
Many bank officials interviewed said they want regulators to provide capacity building and impose practical guidance.
2. Lack of reliable emissions data.
Most information on gas emissions comes from data provided by their customers. Many banks point out that collecting data from customers is not simple, and there is uncertainty on which carbon accounting and valuation methods to use. In addition, most customers, especially small and medium-sized enterprises (SMEs), are not ready to disclose emissions data, as SMEs often lack the resources to collect and disclose such information.
Some banks suggest that creating an open data repository or a national database accessible to all and government support for carbon accounting for SMEs are crucial to enhancing their ability to address climate change at the national level.
3. Need for collaboration among regulators.
The Bank of Thailand and the Securities and Exchange Commission (SEC), as key financial sector regulators, have organised training and developed guidelines for. However, climate-related disclosures still require cooperation from other regulatory bodies, such as the Stock Exchange of Thailand (SET) and the Greenhouse Gas Management Organization (TGO), to ensure consistent guidelines.
Many banks foresee that government agencies will likely play a larger role in enforcing climate-related disclosure regulations in the future. For example, the forthcoming Climate Change Act will require banks and companies to adjust to new disclosure and risk management practices.
4. More capacity building needed.
Many banks view TCFD recommendations as a good starting point to prepare for higher standards, such as IFRS S2, which focuses on the financial impacts of climate change on businesses.
Yet the disclosure rule, such as those of IFRS S2, has very stringent accounting-based requirements. Therefore, Thai banks expect government agencies and the Bank of Thailand to provide more in-depth training and collaboration to help the banks' capacity to meet demanding financial disclosure standards.
In the bigger picture, I think many of the challenges of climate disclosure -- as recounted from the eyes of several Thai banks -- can be largely resolved by the right mix of policy initiatives.
Why does policy matter? It matters because the ultimate challenge of transition finance is that climate change risk is distributed across the entire economy and society; it is not concentrated in the hands of any one bank.
It must be said that incumbent banks fear opportunity loss if they stop providing loans to fossil fuel projects which are considered low or even risk-free loans. In the case of Thailand, a fossil fuel energy project is low-risk simply because the government guarantees income to power producers. In a power purchase agreement signed by the Electricity Generating Authority of Thailand (Egat) with a private power plant, the buyer must fulfil the so-called "take-or-pay" obligation. That said, Egat needs to buy the agreed electricity amount from the power plant even if it does not need it. Therefore, power plant investors have guaranteed income to service their debts.
So, how can we persuade and encourage these financial banks to invest in projects that reduce emissions instead of sticking with fossil fuel projects? Just imagine if the Thai government were to do the following.
- Announce a phase-out target date for coal-fired power plants and mandate transition plans for existing facilities.
- Encourage parliament to pass the Climate Change Act with mandatory carbon pricing and disclosure regulations for large companies.
- Invest in providing open-source climate-related data such as local heat stress maps and water stress maps that SMEs can easily utilise for their own climate risk assessment.
- Announce cooperation with multilateral development banks such as the World Bank and Asian Development Bank (ADB) to structure financial innovations such as low-cost blended finance support for decarbonising high-emission activities.
A combination of these policy measures can go a long way in reducing the costs and increasing the attractiveness of the transition to the extent that it can make transition finance attractive for every bank, not just a few ambitious banks that already envision business opportunities from climate action.
Sarinee Achavanuntakul is the Head of Research at Fair Finance Thailand and the Director of Climate Finance Network Thailand (CFNT).