China’s first ‘transition finance’ taxonomy launches

Shanghai began trialling China’s first transition finance taxonomy on 1 January, its local financial supervisor has announced.

Transition finance aims to support companies with high emissions that need to shift gears but don’t fit the bill for the ”green finance” which goes to wind power generators, battery plants and other climate solutions.

The concept has been gaining popularity globally in recent years, though some worries linger about potential greenwashing. Chinese experts have been calling for clear criteria and standards for transition finance, and the new taxonomy is considered to be one of them.

While the taxonomy has not yet been published, the announcement says it currently covers six sectors: shipping; ferrous metal smelting and rolling; petroleum processing; chemical raw materials and chemical products manufacturing; automobile production; and air transport.

Similar taxonomies in other countries provide timed goals for each sector’s emissions cuts, and suggest measures companies can take to reach them. 

Shortly after the launch, Pudong Development Bank approved the first loan in line with the taxonomy – 310 million yuan (around US$43 million) to Spring Airlines.

A third-party agency, United Equator, had assessed the airline’s emissions and transition actions, according to a People’s Daily report. The report said the company’s current CO2 emission level was deemed to have met the threshold for ‘advanced performance’, and that it is on a sufficiently carbon-reducing path. This path includes the introduction of more sustainable aircrafts, energy efficiency improvements to existing aircraft, and use of Sustainable Aviation Fuel (SAF).

The report added that the bank may have provided the loan in the same form as an existing sustainability-linked loan (SLL): “Spring Airlines will set up Sustainability Performance Targets such as tonne-kilometre emissions and the proportion of SAF used, which will be linked to the floating interest rates of SLL.” 

With the loan, the airline plans to further enhance its sustainability by introducing the A320neo, which Airbus claims delivers 20% fuel savings and CO2 reduction compared to their previous-generation aircraft.

Read China Dialogue’s analysis on what’s holding back transition finance in China.