How do you define “transition finance” internally?
We define transition finance as financial services provided to clients aiming to support them in aligning their business and/or operations with pathways in line with the objectives of the Paris Agreement.
SMBC recognizes that transition pathways to net zero should be tailored to our clients’ sector and operating geographies, noting that clients may be at different starting points of their journey towards net zero and that pathway curves may also differ depending on industry or regional characteristics.
What strategy did you develop for Transition Finance-related goals?
SMBC focuses on contributing to the decarbonization of the real economy. As such, supporting the transition of clients who have a credible transition strategy is essential. Lack of support for the transition of these clients may lead to an end-result of not being able to achieve the Paris Agreement objectives. SMBC also recognizes that transition pathways to net zero may require to increase our Financed Emissions (FE) to support clients investing in transactions that will enable them to reduce GHG emissions and our FE in the long-term. Thus, we plan to be transparent on our strategy towards transition finance.
What targets have you set/are you developing?
Targets related to transition finance are under consideration.
What stakeholders did you need to engage with internally in order to get sufficient buy-in to make it feasible to meet your transition finance objectives?
Senior Managements including the CEO and relevant departments such as front office, risk department, credit department, planning department, research department, etc.
Were there challenges in terms of integrating the strategic transition finance-related decisions into ongoing business processes?
We find various challenges related to knowledge, data, procedure, and IT systems. For example, we need to enhance knowledge and skills to understand our customers’ transition strategy to assess individual transactions if they are eligible to transition finance. New data are also required for the analysis.
Is there anything specific to your size, business model or geographic region which you’d like to highlight?
While we do recognize the importance of analyzing the borrower’s climate transition strategy based on science-based pathways, it is also important to highlight that many companies in Asia face challenges following the IEA NZE pathway. Likewise, some countries in the region are aligned to net zero after 2050 (2060–2070), and do not align yet with our commitments. However, we believe that supporting these countries in their transition is essential to achieve the objectives of the Paris Agreement. Bridging this gap is a significant challenge.
Read more on SMBC’s net-zero targets here.
This case study was originally published in the Net-Zero Banking Alliance Transition Finance Case Studies report (January 2023).
Disclaimer: NZBA shares case studies to promote member banks’ awareness of new approaches, tools, products, services, and transactions related to financing the transition to net zero. Featuring a case study naming a particular bank does not represent an endorsement of all actions from that bank.