A decade after the Paris Climate Agreement, Southeast Asia’s financial sector is increasingly focusing on supporting investments that contribute to decarbonization. Transition finance has emerged as a critical enabler, bridging the gap between today’s fossil-based economies and the clean energy future that governments and corporations aspire to achieve through their net-zero commitments.
In this exclusive conversation for SIPET Connect, Peter du Pont, Senior Advisor on the GIZ CASE project speaks with Anouj Mehta, Director of ADB’s Thailand Resident Mission. Mehta, who is the architect of the $2 billion ASEAN Catalytic Green Finance Facility (ACGF). shares insights on how transition finance can be scaled up effectively. With extensive experience in structuring financial solutions for green infrastructure, Mehta discusses the realities of mobilizing private capital, the role of development finance institutions (DFIs), and the innovations required to make transition finance work for Southeast Asia.
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SIPET Connect: Transition Finance is gaining traction globally, but how would you define it in the context of Southeast Asia? How does it differ from green or sustainable finance?
Anouj Mehta: Transition finance is fundamentally about mobilizing finance that can incentivize public and private sector entities to make the shift to much more resilient and environmentally sustainable practices than they currently deploy so as to lead to a much lower carbon footprint. This can be across all sectors whether in manufacturing, agribusiness, infrastructure, or services. Unlike green finance for projects that are immediately eligible and sustainable per green taxonomies, transition finance focuses on those hard-to-abate sectors, which require much more support in establishing a pathway towards the final goal of low emissions and resilience.
Southeast Asia has a complex energy landscape. Despite ambitious net-zero targets, the region remains heavily reliant on fossil fuels, particularly coal, which accounts for as much as 40% of power generation in many countries. The challenge is that many businesses, particularly in hard-to-abate industries like steel, cement, and transport, lack access to affordable financing to transition away from fossil fuels. This is where transition finance plays a crucial role. For example, it can facilitate the necessary financial mechanisms to support a range of investments, including:
1. Transition to a renewables energy mix;
2. Grid modernization to integrate intermittent renewables more effectively;
3. Energy efficiency improvements across industrial and commercial sectors;
4. Low-carbon transport systems including electrification of bus and rail networks; and
5. Risk-sharing mechanisms that encourage private investment in decarbonization projects.
This is where derisking or catalytic funds can make a difference. For instance, the ACGF aims to blend sovereign finance with funds from concessional donors so as to derisk green projects and hence attract commercial finance sources.
SIPET Connect: What role do Development Financing Institutions, or DFIs, play in structuring multi-donor transition finance mechanisms?
Anouj Mehta: DFIs are essential in creating viable financing structures that balance risk and return. Transition finance often involves investments that are not immediately commercially attractive, so DFIs could try and mobilize concessional finance, provide risk guarantees, and technical assistance to make these projects bankable.
Take ACGF, for example. We pool resources from multiple partners—ADB, the EU, Green Climate Fund, the UK, Germany’s KfW, and others—to create structured, multi-donor financing programs or projects. This approach ensures that projects in more challenging sectors, which often struggle to attract private capital, receive the bankability enhancement needed to move forward.
Good examples are emerging from the ACGF work which involves blending and derisking such as the Davao Public Transport Modernization Project in the Philippines which is the first project in the country to deploy electric bus fleets at scale, almost 1100 e buses, will service nearly 800,000 passengers daily, and targets a 60% reduction in the city’s urban transport GHG emissions– this could serve as a replicable pilot for the country and the region; other projects with great replication potential include the SDG Indonesia One green finance facility and Thailand focused GSS Bonds + program
SIPET Connect: What are the biggest bottlenecks preventing transition finance from scaling up in Southeast Asia?
Anouj Mehta: The availability of transition capital through locally available finance facilities that can be flexible and affordable is perhaps the biggest challenge. Traditional financing sources have yet to adapt to this need, with either being very commercial and focused on risk-return paradigms that do not allow untested transition innovation or very complicated public finance processes that might be slow in deployment and reach. Three other key challenges are:
1. Low level of deployment of innovative transition finance instruments such as transition bonds or incentive-linked financing products
2. Lack of clarity especially at SMEs and SOEs on transition pathways and targets that need to be developed
3. There is often regulatory uncertainty, as the policy frameworks for transition finance are still evolving. Governments need to provide clear guidelines and incentives to de-risk investments.
All of this is why collaboration between DFIs, policymakers, and the private sector is critical. Countries that have taken a proactive approach—such as Thailand, which recently issued sustainability-linked bonds—are showing how transition finance can work when financial incentives align with decarbonization goals.
SIPET Connect: How do financial instruments like bonds contribute to transition finance?
Anouj Mehta: Bonds—particularly sustainability-linked bonds (SLBs)—are powerful tools to drive transition finance. Unlike traditional green bonds, which are tied to specific projects, Sustainability-Linked Bonds (SLBs) incentivize companies to meet sustainability targets by linking interest rates to performance. If a company fails to meet its targets, it pays a penalty through higher interest rates.
A case in point is Uruguay’s sustainability-linked bond model, which some of our ADB teams are adapting for under development projects and programs. This model ensures that borrowing costs remain competitive while encouraging long-term sustainability commitments. Similar structures could be applied across Southeast Asia to finance large-scale transitions in energy, industry, and transport.
SIPET Connect: What advice would you give to organizations looking to harness transition finance effectively?
Anouj Mehta: I feel, the change should start first with innovation in the technical approaches needed for your transition programs – whether energy mix or manufacturing process or logistics etc - and then look at what’s needed financially to make these approaches into bankable propositions. Identify the financing gaps and look at what governments and DFIs can offer to mitigate these gaps.
To make transition finance work, companies and governments need to do a few things.
1. Leverage blended finance models, using a mix of grants, concessional funding, and commercial capital to lower overall risk;
2. Demonstrate clear financial returns, so that investors can see a path to profitability, whether through carbon credits, efficiency gains, or regulatory incentives; and
3. Finally, engage with policymakers early, since policy incentives, such as tax breaks or feed-in tariffs for renewable energy, can make or break a project’s financial viability.
SIPET Connect: Looking ahead, how do you see DFIs shaping transition finance in the next five years?
Anouj Mehta: Development Financing Institutions (DFIs) nationally and regionally, need to act quickly, innovate new financing products and instruments, and help build local capacities. If we’re serious about meeting net-zero targets, we cannot afford to move at the current pace. Some key areas for all development agencies to focus on include:
1. Accelerating approval processes for financing decisions;
2. Expanding risk-sharing mechanisms, such as Guarantee structures and first-loss capital must become standard for high-impact transition projects;
3. Scaling new financial instruments—we need more innovation in structured finance, such as sustainability-linked bonds, transition bonds, and hybrid debt models.
DFIs such as ours can help and I would urge more projects to look at the support available from catalytic funds and facilities such as the ACGF or the ADB’s recently launched Nature Solutions Finance Hub etc. The ACGF is leading the way – it has already impacted almost 50 green projects, catalyzed $ 7 bn of projects and innovating new concepts – whether over 15 thematic bonds already issued, green finance national facilities and more. This is the level of momentum we need to maintain.
Transition finance is not about replacing green finance; it is about complementing it—ensuring that industries and economies that are still carbon-intensive have viable pathways to sustainability. If structured correctly, transition finance can bridge the gap between climate ambition and real-world investment, making net-zero commitments more than just promises on paper.
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Editor’s Note: Transition finance is emerging as a critical tool to bridge Southeast Asia’s green ambitions with financial realities, ensuring that industries can decarbonize without disrupting economic growth. This interview highlights the key challenges—risk perception, slow capital deployment, and policy gaps—while also showcasing practical solutions like blended finance, sustainability-linked bonds, and risk-sharing mechanisms. As the region accelerates its net-zero transition, the insights here reinforce that success will depend on speed, scale, and smarter financial structures that mobilize both public and private capital effectively.