As Southeast Asia enters 2025, the urgency to align the energy systems in rapidly-growing countries with their net-zero ambitions is more pressing than ever. Ten years after the signing of the Paris Cimate Agreement, the financial sector (banks, investors, and development financing institutions) across Southeast Asia is clearly focusing on understanding how to support investments that contributed to decarbonization in energy generation as well as across end users in the commercial and industrial sectors. Transition finance has emerged as a critical enabler for decarbonization, bridging the gap between the reality of today’s fossil-based economies and the clean energy future that governments, businesses, and communities aspire to achieve, and that governments and corporations have committed to realize, through their net-zero commitments.
To start the new year, SIPET Connect is proud to continue its Transition Finance Series with Melissa Brown, Director at Daobridge Capital. With more than three decades of experience as a power sector analyst across Asia, Melissa is a leading voice in shaping financial strategies that drive energy transitions. Her career spans roles as Director of Asia Finance Studies at IEEFA1 and Managing Director at Citigroup, where she led teams analyzing major power companies and advising on sustainable energy solutions. Known for her pragmatic and actionable insights, Melissa is a trusted advisor to investors, regulators, and corporates navigating the complexities of Southeast Asia’s energy transition.
In this timely discussion with Peter du Pont, Senior Advisor to SIPET and Co-CEO of Asia Clean Energy Partners, Melissa explores the evolution of transition finance, the role of global frameworks, and the importance of innovative tools like sustainability-linked loans and blended finance mechanisms. Reflecting on the progress made over the past three decades, and the challenges ahead, Melissa provides a candid assessment of Southeast Asia’s readiness for transition finance in 2025, shares examples of inspiring deals, and outlines a roadmap for financial institutions to play a leading role in shaping a resilient, low-carbon future.
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SIPET Connect: Transition finance has gained significant traction as a key mechanism for decarbonization, including in Southeast Asia. Could you elaborate on the origins of the concept and how it evolved from earlier discussions around green finance?
Melissa: The concept of transition finance didn't just emerge out of thin air—it was a natural evolution from the broader conversations around green finance. The idea came into sharper focus when market players began to see the limitations of green finance, particularly in regions like Southeast Asia, where economies are deeply tied to high-carbon industries. Transition finance was positioned as a pragmatic tool, acknowledging the realities of sectors that can’t decarbonize overnight.
But let’s first take a step back. Initially, there was this idea of a ‘greenium’—the notion that issuers of loans or bonds who committed to sustainability, with high transparency and excellent standards, could attract capital at better pricing. This was an optimistic view of how markets might develop. The idea was that investors would pay a premium for green debt because it aligned with their sustainability mandates. However, that turned out to be naive in many cases.
We've seen moments where a greenium exists, but it’s often fleeting. It depends on market conditions, and it's not something you can always count on. Companies with strong sustainability credentials might attract a broader range of capital providers, but the notion of a consistent greenium wasn’t the silver bullet some imagined. It’s important to understand that the transition finance concept was born out of necessity—to fill the gap left by green finance for economies that need incremental steps, not leaps.
SIPET Connect: How do you see the market now in terms of its readiness for transition finance?
Melissa: The market is evolving, but it’s still in a learning phase when it comes to transition finance. There’s growing recognition of the need to address transition pathways, but many players are still focused on green finance, which, while important, doesn’t cover the broader set of needs for economies like those in Southeast Asia.
We see a lot of experimentation right now, with banks and institutions exploring sustainability-linked loans and blended finance mechanisms. But the scale of investment isn’t where it needs to be yet. A big challenge remains in building confidence—both for private capital to invest and for corporates to take on the commitments that these instruments require.
Another factor shaping the market is the increasing involvement of DFIs2. Their ability to de-risk investments is critical, particularly in hard-to-abate sectors. But what’s equally important is an alignment between DFIs and private capital, to ensure that funding is accessible and targeted at the right kinds of projects.
SIPET Connect: Sustainability-linked loans are increasingly popular. How important are these instruments for advancing transition finance?
Melissa: Sustainability-linked loans (SLLs) are incredibly important in Southeast Asia because they provide a way for companies to integrate sustainability into their financial strategies without being tied to a specific project, as with green bonds. The flexibility of these instruments allows companies to work on broader operational goals.
In Thailand, for example, we’ve seen SLLs linked to metrics like reducing energy intensity or greenhouse gas emissions in operations. These metrics are increasingly tied to international standards, which is encouraging. But, as with all tools, the devil is in the details. If the targets are too modest or the penalties for non-performance aren’t meaningful, the impact can be minimal.
To make SLLs effective, there’s a need for strong performance benchmarks and transparency. Banks and lenders have a role to play here in ensuring that the targets are ambitious enough to drive change. It’s not just about having sustainability metrics—it’s about ensuring those metrics align with a decarbonization pathway that makes a real difference.
However, we should also acknowledge that these are new policies and new instruments with new constructs that have untested reporting patterns. Even the issuers themselves are still figuring out how to consistently meet their commitments and measure performance in a credible way. There is a learning curve for the entire financial ecosystem—borrowers, lenders, and regulators alike. To build confidence in these instruments, the financial sector must focus on creating robust reporting frameworks and ensuring accountability.
SIPET Connect: What is the policy narrative that we see now? How would you describe it, and how is it going to change?
Melissa: I think we’re coming to the end of nearly a decade of active innovation and experimentation around sustainable finance. But I also think 2025 is going to be a year where you’ll see significant challenges to what has been a policy narrative largely prescribed at a global level. This narrative hasn’t yet been fully realized in Southeast Asia and is likely to be turned on its head.
There are consequential developments on the horizon. Some will happen in the first half of 2025, while others have already occurred, signaling a need to reevaluate. For instance, the policy-driven narrative we’ve seen globally—particularly from the EU—has focused on market-based frameworks that assume uniformity across regions. Yet Southeast Asia’s socio-economic and political realities require more nuanced, market-specific solutions.
I’m bullish on transition finance, but I believe that some of the tools we’ve relied on may diminish in importance. Policymakers and financial institutions must adapt to these shifting dynamics. Banking regulators and government leaders need to step up and break away from the one-size-fits-all playbook, allowing for more innovation and market-tailored approaches.
SIPET Connect: In the context of transition finance, there has been a growing conversation about the role of global frameworks in shaping regional approaches. The European Union, in particular, has set ambitious benchmarks with its policy frameworks like the EU Taxonomy and other sustainable finance initiatives. How do you see these influencing transition finance efforts in Southeast Asia?
Melissa: The European Union has been a significant driver of sustainable finance globally, with initiatives like the EU Taxonomy and various policy-driven market frameworks. These have set the benchmark for what many regions consider the gold standard in sustainable finance. However, one of the challenges we face in Southeast Asia is the mismatch between these global standards and the local market realities.
Southeast Asia operates in a very different socio-economic and political environment. Policies that work in Europe, with its developed markets and robust infrastructure, don’t always translate effectively here. For example, frameworks that assume uniformity across industries and markets don’t account for the diverse energy mix and economic constraints in countries like Indonesia or Vietnam.
That said, the EU framework still plays an important role by providing a reference point. It helps financial institutions and policymakers in Southeast Asia align their efforts with global expectations, especially for international investors. However, what’s critical is adapting these frameworks to local contexts—allowing for more tailored approaches that reflect the region’s unique transition challenges.
SIPET Connect: When we look at the first big round of green finance in Asia and Southeast Asia, it was often tied to Nationally Determined Contributions (NDCs) and government commitments. How do you see the effectiveness of this approach, and what lessons can transition finance learn from it?
Melissa: The early wave of green finance in Southeast Asia largely focused on projects with straightforward green credentials—solar farms, wind farms, or other renewable energy investments. These were often linked to NDCs, which were meant to reflect national priorities under the Paris Agreement. However, the reality is that many of these NDCs have been more aspirational than actionable.
As an investor or lender, you can’t assume that an NDC automatically translates into a strong policy framework or enforceable commitments. Many Southeast Asian countries face significant gaps between their stated ambitions and the mechanisms needed to achieve them. This disconnect creates uncertainty for financial institutions trying to align their portfolios with long-term climate goals.
The lesson for transition finance is that it must be more pragmatic and flexible. Unlike green finance, which can focus on 'pure green' projects, transition finance needs to navigate complex realities—helping sectors that are not yet fully aligned with net-zero goals but are making meaningful progress. It’s about bridging the gap between where companies or sectors are today and where they eventually need to be in a net-zero future, without relying on overly optimistic assumptions about policy or market readiness.
SIPET Connect: Given that there is no one-size-fits-all, are there any specific deals or initiatives that give you hope or could serve as models for future efforts?
Melissa: Absolutely, there are several deals that stand out as benchmarks for what transition finance can achieve when applied thoughtfully. One of the examples I find particularly compelling comes from Thailand, where we’ve seen sustainability-linked loans tied to very clear and measurable corporate commitments. These loans aren’t just about providing capital; they’re structured to create accountability for companies to meet specific decarbonization targets. That kind of alignment between financial terms and sustainability outcomes is exactly what we need to replicate across other markets.
I think that blended finance is often over-hyped by policy advocates. That said, really targeted blended finance models public and private capital has the potential to fund transitions in heavy industries. For instance, financing structures that integrate concessional funding with commercial investment have played a pivotal role in de-risking projects and making them bankable for private players. These deals demonstrate the power of collaboration between development finance institutions, governments, and private sector actors.
The scalability of these initiatives is what’s truly exciting. If we can refine the frameworks and improve reporting mechanisms, these kinds of deals can serve as templates. They show that transition finance is not just about meeting ESG standards but about creating real, measurable impacts in emissions reductions and sustainability transitions. It’s a space where innovation can meet scale in very meaningful ways. One word of warning though: the country context really matters because providers of concessional financing need certainty that execution risk can be managed and priced correctly. No one will benefit if these deals are seen as bail outs.
SIPET Connect: As we wrap-up this insightful discussion, what are your final reflections on the evolving role of transition finance?
Melissa: We’re entering a really complex period, and I think parts of the broader community—especially those who have been strong advocates for sustainable and green finance—may not fully embrace this shift toward transition finance. It’s not going to be universally loved, and there will undoubtedly be points of disappointment along the way.
But on balance, I’m optimistic. If transition finance is successful in attracting more capital, it will help the market mature in how it prices transition risks. This maturity will make it easier to identify players who can seize technological opportunities and genuinely transform markets. That’s what makes me positive about transition finance—it’s realistic, and it aligns well with how markets can and should function.
This is also a great time to go back to fundamentals and recognize that the way financial markets create new liquidity for the energy transition is going to vary from market to market. Instead of being intimidated or clinging to a single model that might not fit everywhere, this is an excellent opportunity to dig deeper into what works in specific contexts. Transition finance has the potential to be a catalyst for meaningful change if approached with the right balance of innovation, pragmatism, and market insight.
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Editor’s Note: Melissa Brown’s perspective offers a compelling look into the transformative potential of transition finance, as Southeast Asia navigates a pivotal year in its climate journey. The region is tackling the intertwined challenges of economic growth and decarbonization, and it is becoming clear that innovation, collaboration, and adaptability are essential. Tools like sustainability-linked loans and blended finance are not just financial instruments—they represent pathways to align capital investments with impactful climate solutions.
This raises an important question: Are we ready to reimagine how finance operates in the face of an urgent climate reality? Southeast Asia’s leadership in this space will hinge on its ability to embrace complexity, challenge traditional norms, and act with purpose. While transition finance may not be a perfect solution, it provides a vital opportunity to reshape markets, redefine priorities, and drive a more sustainable future. Will business and financial leaders in the region seize this opportunity to make a meaningful impact?