Banks Drive Just Transition: Tools for Coal Plant Phase-Out

Climate Finance Asia, the secretariat of the Facility-level Just Transition Working Group (F-JTWG), has launched the world's first Facility-level Just Transition (F-JT) Guidelines for Banks. The guidelines, along with helpful Assessment Tools and an anticipated Scorecard, are designed to lead banks to implement Just Transition values in their financing decisions while enabling a socially equitable phase-out of coal-fired power plants (CFPPs). The launch follows the setting up of the F-JTWG in 2024 and release of a draft report. Membership is made up of a group of 13 global and regional systemically important banks, non-governmental organizations, and philanthropic foundations such as the Growald Climate Fund, Climate Bonds Initiative, Anthropocene Fixed Income Institute, International Labour Organization (ILO), and OCBC.

F-JT methodology aims to operationalize Just Transition principles by applying them in decision-making at the project or facility level. The guidelines provide banks and borrowers with step-by-step methodologies for project planning, assessment, and implementation of CFPP phase-out projects with a view to considering social, economic, and environmental concerns. The methodology is informed by international standards and learned from real project experiences from industry practitioners. The suggestions also aim to address the problems that have instead slowed banks and financial institutions in balancing climate factors in the finance business plans, such as where coal continues to be part of the prevailing energy mix as in Asia. Among the first major tools to be introduced is the F-JT Plan Assessment Tool.

The latter helps borrowers prepare for having robust Just Transition Plans on which banks can make judgments in the course of their own due diligence. It covers six key areas of attention: Energy, Environment, Labour, Livelihoods, Gender, and Governance. These areas of attention capture the broad scope of Just Transition to ensure that energy transitions are not disproportionately harming vulnerable populations or local workers. The instrument supports project planning by establishing gaps and ensuring mitigation is included in transition projects from the start. The other notable publication is the Bank Just Transition Self-Assessment Tool.

The internal instrument of the bank enables banks to evaluate their capacity to deliver financing in alignment with Just Transition-linked finance. The instrument helps institutions measure how ready they are to handle borrower projects, assess governance process alignment with Just Transition parameters, and determine areas of improvement. Raising the level of in-house instruments in banks, the instrument enhances the degree of institutional consistency and accountability in finance decision-making. One of the central features being developed is the F-JT Scorecard.

At launch, it will allow third parties to assess the performance of banks in carrying out Just Transition principles in CFPP transition projects. The scorecard will examine the extent to which a bank supports and manages a borrower's JT Plan and will rate the bank and borrower on the six priority areas. This provides a structured way to benchmark and compare projects, allowing transparency as well as ongoing improvement within the sector. Their use will influence the way banks practice climate finance, especially in fossil fuel-dominated economies. By creating a standard procedure for integrating social equity and environmental sustainability into financial decisions, the guidelines aim to avoid negative socio-economic effects typical with sudden energy shifts. The tools are meant to guarantee the protection of workers, communities, and ecosystems as they accelerate the phase-out of coal to renewable energy.

The F-JTWG's collective strategy combines financial, environmental, and social aspects and offers a multi-dimensional response to climate problems. Through bank-civil society-policy specialist cooperation, the group has developed a framework that can be applied universally and regionalized by regions. The guidelines are designed for use on a day-to-day basis and can be integrated into the business of banks already engaged in CFPP retirement planning.

Climate Finance Asia, the convening organization, is a regional advisory board with sustainable finance expertise. Established first as Carbon Care Asia in 2008, it has built a strong track record of assisting Asian institutions in aligning with international climate goals through effective financial strategies. The release of the F-JT resources marks an important milestone in further strengthening the role of financial institutions in facilitating equitable and inclusive climate transitions.

With these guidelines now publicly available, banks and other interested parties are encouraged to apply the guidelines to real CFPP transition cases and provide feedback to help increase their effectiveness. As demand for sustainable and equitable climate finance grows, these guidelines are well set to serve as a "go-to" document for banks to become responsible players in a low-carbon future.

Source/Credits:Climate Finance Asia | News Release | April 9, 2025