The finance industry is looking at how to align financial flows to the decarbonisation and resilience goals of the Paris Agreement. Regionally, a variety of initiatives are in place that categorise economic activities according to their ability to address the climate problem. Increasingly, the dialogue is about making sure finance supports the transition of the high climate impact companies of today to become the low climate impact companies of the future.

This paper proposes a principles-based framework to define climate transition finance in context of market developments to date in China and Hong Kong, but it also has regional application. This approach, in spirit, is about financing technologies and activities that drive lower carbon outcomes than business-as-usual. The framework is one that market authorities could consider implementing. The framework captures areas such as companies disclosing about how they are planning to align to a low-carbon future, and the constraints they face in relation to delivering the plan.

Emerging tools and methodologies such as the Science Based Target, Transition Pathway Initiative, and Climate Bonds Initiative complement the proposed principles-based framework in this paper and help to facilitate credible and impactful climate transition financing. In the policy space, there is growing acknowledgement and reference to transition finance, explicitly and implicitly. The Hong Kong Green Finance Association expect a stronger convergence on definitions related to transition finance over time. Consequently, this paper offers a question-based framework for governments, institutions, and corporations to kick-start a transition financing strategy of their own.

This paper jumps into the fast-growing global discussion on the topic of climate transition finance with an overview of existing terms and market discussions. The aim of this proposal is to add to the conversation on defining climate transition finance, with insights and views from China and Hong Kong SAR, which will add to the momentum that leads to greater climate action.

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