Transition finance: Building the bridge to a low-carbon future
With new guidelines and taxonomies redefining what “transition” means, markets now have clearer guardrails for credible decarbonization. This blog unpacks what’s changing and why it matters.
The global financial system has taken another meaningful step toward supporting a low-carbon economy. In November 2025, the International Capital Market Association (ICMA) published its Climate Transition Bond Guidelines, outlining how transition bonds should be structured and assessed. This is more than a technical update, it signals a shift in thinking. The guidelines reflect a maturing understanding across markets: transition finance is not an abstract idea, but an essential mechanism for enabling credible, long-term decarbonization.
Why transition finance matters
The world does not fall neatly into “green” or “brown.” Economies are built on interconnected industries, supply chains, and communities that rely on existing infrastructure. Expecting immediate transformation is unrealistic. Transition finance recognizes this complexity. It provides a structured pathway for companies and governments to make science-based commitments to reduce emissions over time, while maintaining economic continuity.
A critical approach for ASEAN and developing economies
This perspective is especially relevant for ASEAN and other fast-growing regions. Economic expansion in these markets continues to depend on fossil-fuel-intensive sectors. Mandating rapid decarbonization could risk economic disruption and social challenges. Transition finance offers a pragmatic alternative, it provides incentives for gradual, measurable progress and encourages industries to shift away from carbon-intensive practices. In essence, it recognizes that transition is a journey, not a destination.
ASEAN Taxonomy: Strengthening clarity for transition activities
The recent update to the ASEAN Taxonomy, released on 6 November 2025, reinforces this principle. While the taxonomy has always used a tiered approach, the latest version expands coverage into new sectors and offers clearer criteria on what qualifies as “transition.” This level of clarity is essential. Without well-defined standards, the transition label risks being misused, creating opportunities for greenwashing. By broadening coverage and refining criteria, ASEAN gives investors and policymakers a stronger framework for identifying credible transition activities.
Japan’s example: Transition finance in action
Japan provides a tangible illustration of how transition finance can be deployed effectively. The Government of Japan issued one of the world’s first sovereign transition bonds to support its long-term decarbonization strategy for heavy industry and energy systems - not to eliminate them, but to transform them. Funding includes investments in hydrogen, CCUS, and advanced electrification technologies that enable sectors such as steel, chemicals, and power generation to reduce emissions while remaining competitive.
As part of this initiative, DNV provided independent verification, assessing the framework against established international expectations and confirming its robustness. This example demonstrates how transition finance is already influencing capital flows and enabling major economies to balance climate ambitions with industrial resilience.
Looking ahead
The direction of travel is clear: transition finance is not a compromise, but a necessity. It helps economies advance without being forced into false choices, between growth and sustainability, between innovation and stability. With the ICMA guidelines, the updated ASEAN Taxonomy, and pioneering efforts like Japan’s transition bond, the global market now has stronger guardrails to support credible, transparent transition strategies.
At DNV, we will continue supporting organizations and governments as they navigate this evolving landscape, providing assurance, technical insights, and independent verification to strengthen trust and accelerate progress toward a low-carbon future.
12/2/2025 1:45:00 AM
