Transition finance plays a vital role in enabling high-emitting sectors to decarbonize. Building on the previous work of the Net-Zero Banking Alliance (NZBA) and other organizations, this report provides practical insights into how banks are integrating transition finance to support the decarbonization journey of their clients.

Drawing from banks’ transition finance approaches and input from NZBA member banks, this report consolidates emerging practices, identifies common challenges, and fosters a shared understanding of credible transition finance approaches for banks.

Key insights and findings

  1. Framework integration An increasing number of banks are developing transition finance approaches to complement their sustainable finance frameworks, with eight NZBA member banks featured in this report. These frameworks provide transparency regarding their criteria to categorize transition finance transactions.
  2. Scope and coverage Banks’ transition finance approaches cover activity-level and, increasingly, entity-level financing. Transition finance eligibility lists typically focus on hard-to-abate sectors, alongside cross-cutting activities across industries, such as carbon capture and electrification.
  3. Assessment criteria Banks use a combination of criteria to assess transition finance transactions, often specifying an activity eligibility list for dedicated-purpose financing and requiring a credible transition plan for general-purpose financing.
  4. Governance: There is no standard approach to overseeing transition finance. Banks employ varied governance models for their transition finance approach, from centralized committees to decentralized decision-making, often involving sustainability, credit, and risk teams. Internal audit or independent verification processes are used to ensure robustness and transparency.

As the approaches of banks to transition finance mature, NZBA will continue to share emerging practices to support the integrity, scalability, and credibility of transition finance, enabling banks to play a leading role in financing a just and orderly transition to a low-carbon economy.