Mapping the evolution of sustainable loans and transition finance across Asia

Thomas Leonard, DNV's head of sustainable finance in Asia Pacific (APAC), shares an in-depth view of how Asia's sustainable loans market is evolving amid the challenge of reconciling economic development needs with environmental imperatives in some of the world's most carbon-intensive sectors.

Environmental Finance: How would you characterise the current momentum and evolution of sustainable loans across APAC?

Thomas Leonard: The picture is far from uniform. In Southeast Asia, the strongest sustainable finance markets have traditionally been Singapore and Thailand. Singapore continues to lead the way, but sustainable finance continues to grow across the region – Thailand's volumes dipped slightly in 2023 and 2024, compared with the peak of 2022, although we're already seeing signs of new growth in 2025. Beyond that, we're also seeing encouraging growth in Indonesia, Malaysia, and Vietnam – where sustainable finance is gaining traction. The Philippines is emerging as a notable growth market, with a growing pipeline of sustainable lending activity. In India and China, my colleagues tell me that their pipelines are equally robust. The momentum they describe suggests that interest and activity are accelerating right across the region.

EF: Is the momentum concentrated in specific areas or sectors, or is it broadly optimistic across the board?

TL: Traditionally, the deals we've seen have been concentrated in "uncontroversially green" sectors: renewable energy projects such as solar farms, etc. These deals remain important but are no longer the majority. Over the past three to four years, we've seen strong growth and a broader market trend toward sustainability-linked instruments and transition finance.

Asia's economies, particularly in Southeast Asia, are still growing. These countries face massive development needs – from electricity and transportation to housing, hospitals, and schools. That infrastructure has to be built, and inevitably, this will have an environmental footprint. Trying to do that in a manner regarded as science-based is going to be a challenge. There is a tension between that and ensuring international investors agree that what they are doing is a green or transitional activity.

EF: How is transition finance being integrated into the sustainable loan space in Asia, especially in carbon-intensive industries?

TL: I am not aware of any explicitly "transition use-of-proceeds" loans in the region. What's far more common is the use of sustainability-linked loans. However, they don't fund specific assets or infrastructure e.g., power stations, steel mills, or rail systems.

Over the past three to four years, we've seen strong growth and a broader market trend toward sustainability-linked instruments and transition finance

Right now, there's still a gap between what many countries want to finance versus what global frameworks will endorse, and international investors will invest in. In Southeast Asia, for example, there is still a drive to build new, more-efficient coal stations. However, you won't yet find loans explicitly labelled as transition finance for building fossil fuel plants – even efficient ones.

The closest you get to this is in Japan, where the conglomerates are trying to finance their pathways to net zero. But they are not saying they want to build new coal stations as part of their transition pathways.

EF: Can you give an example of how this tension plays out in practice?

TL: There's widespread recognition that Southeast Asia can't be powered entirely by wind and solar in the next decade. So, gas-fired power stations are often positioned as a "bridge" technology, replacing less efficient coal-fired plants.

However, here's the dilemma: If your current fleet emits 1,200 grams of CO₂ per kilowatt-hour, and you build a plant emitting 750 grams, you've made a big local improvement. But globally, you're still well above average emissions intensities. In climate terms, it's hard to frame that as progress.

The Association of Southeast Asian Nations' (ASEAN) Taxonomy uniquely classifies coal plants as "green" or "amber" if scheduled for retirement by 2040 or 2050, respectively, integrating Just Energy Transition Partnerships (JETPs) and the Asian Development Bank's Energy Transition Mechanism (ETM) to accelerate sustainable financing for early coal phase-out. While no such deals have closed yet, the idea of funding early coal phase-out could be interesting.

It's a tricky one, however, as their coal fleet is quite new, so you're talking about shutting coal stations down well before they have reached their end of life. If you look at Europe, there are coal stations that ran for 50-60 years before they were shut down.

EF: What are the biggest challenges in applying sustainable finance frameworks in Asia?

TL: Data is a perennial issue. For example, in Europe, detailed databases allow for precise thresholds in areas like green road freight. In Southeast Asia, such data is often missing.

The ASEAN Taxonomy, where applicable, aligns with EU standards, such as those for emissions reductions. But it is contextualised to ASEAN's unique circumstances, accommodating older fleets and infrastructure while maintaining interoperability with global frameworks. For example, European vehicles standards are used as a green proxy for intercity buses, even though these buses still run on fossil fuels. The logic being that if you're putting people in a bus, you are not putting them in a car. So the EU Taxonomy does allow for this to be labelled green.

The principle of 'do no significant harm' (DNSH) is tricky to apply in APAC and also requires a broader lens. It could be seen as an adaptation and resilience issue instead. For example, a mass-transit project might cut transport emissions, but we also need to know it will withstand sea-level rise in 20 years. It's a question that people don't always immediately think about when they are considering green projects.

DNSH also touches on biodiversity impacts and recycling infrastructure – both of which can be weak points in emerging markets. For example, solar panel end-of-life recycling is still underdeveloped in much of Asia.
Our challenge as a verification company is to get all this information, as it is not always immediately available.

EF: Where does APAC sit today in the drive towards harmonising taxonomies, particularly in amber categories?

TL: There is more or less global alignment on truly green activities such as wind and solar. Transitional activities are harder to standardise because APAC economies differ so much, and they all have very different thresholds of what they consider to be transitional. For example, the ASEAN Taxonomy has two amber tiers in order to cover 10 member states. It's very difficult for such diverse countries to have a single unified concept of what transition means. The lack of a central enforcement body or political body across the ASEAN countries means that consensus needs to be voluntary when setting thresholds.

Science-based targets are challenging to apply. While there may be guidelines for what is a science-based pathway, they are often European-centric. They assume mature infrastructure, for example, which some Asian markets lack

The ASEAN Taxonomy has sought to provide interoperability with the EU Taxonomy while keeping in mind ASEAN-specific concerns. For example, unlike in the EU, where most transmission and distribution upgrades are automatically green, ASEAN grids often need substantial modernisation before meeting such criteria. Therefore, it is an important transition investment.

Rather than seeking full harmonisation, ASEAN is seeking to map the various taxonomies against each other. For example, the All-Countries Common Equivalence Platform for Taxonomies (ACCEPT) is an upcoming digital platform to facilitate interoperability and comparability between the ASEAN Taxonomy and national frameworks.

EF: How have the quality of key performance indicators (KPIs) and Sustainability Performance Targets (SPTs) evolved in APAC's sustainable loans?

TL: They've grown more sophisticated. Targets still include emissions reductions and energy efficiency, but they are now more context-specific. Baselines in Asia can differ vastly from those in Europe, so credit must be given to progress made.

With the growing sophistication of KPIs and SPTs we've seen more examples of organisations transforming their operations towards increased environmental sustainability. The Thai food manufacturer Thai Union, for example, is working toward full supply-chain certification for its operations – something that wouldn't have happened a few years ago. That's been an interesting development.

The Provincial Electricity Authority in Thailand (see box) also issued a bond to fund grid enhancements, microgrids, and interconnectors to boost energy security and climate resilience – illustrating the expansion from mitigation to adaptation financing.

EF: How can APAC organisations meet the pressure to achieve science-based targets?

TL: Science-based targets are challenging to apply. While there may be guidelines for what is a science-based pathway, they are often European-centric. They assume mature infrastructure, for example, which some Asian markets lack.

Therefore, you do need to give a bit of leeway in those areas where progress may be significant locally, even if it doesn't fully align with strict science-based criteria. If you're trying to encourage people to be greener, you can't always be too purist about that in APAC.

Scope 3 emissions are also especially tough to measure in Asia's fragmented supply chains. It is not realistic to expect that you will be able to source the data needed to understand Scope 3 emissions when your supply chain is made up of thousands of small operations and producers. An example of a compromise could be buyers asking their sellers to align with certain levels of certification or practices in the absence of being able to collect exact emissions data.

Aggregation, spot checks, and certification could be solutions in the absence of precise data. It may be necessary to acknowledge it's as realistic a number as you can get. That's the only way you can realistically do it in the near-term.

At DNV, we design credible data aggregation methods that combine rigorous sampling techniques, industry-standard certifications, and context-specific benchmarks to ensure reliable and transparent sustainability metrics, enabling organisations to meet reporting requirements and build trust with investors – despite data limitations in APAC markets.

EF: What is next for the sustainable loan market in Asia?

TL:  APAC will continue to be a very important market for sustainable debt, and is a bright spot relative to some of the ESG headwinds being experienced in other regions.

Japan is clearly going to be one of the biggest markets, particularly in areas like sovereign and corporate bonds, as well as transition finance. India and China are also growing rapidly in sustainable finance, while South Korea remains a steady and active market. We're also seeing rising interest in the Middle East.

Looking ahead, taxonomies will play a key role – they act as a silent benchmark that we can't ignore, even if not explicitly cited. This will shape how green or sustainable finance is defined.

Transition finance will continue to play a greater role in sustainable finance in Asia, with new instruments like amber loans and bonds emerging. At DNV, we're positioning ourselves to support this by developing robust verification frameworks, enhancing data aggregation methods, and providing tailored advisory services to align regional projects with global sustainability standards, while addressing APAC-specific challenges.

For more information, see: www.dnv.com

Channels: 

Companies: 

People: