Transition Finance Framework 2021

Transition FinanceFramework 20211

Standard Chartered Bank Transition Finance Framework 2021Standard Chartered’s Transition FinanceFrameworkClimate change is one of thegreatest challenges facing theworld today, with the emergingand developing markets that weoperate in facing some of the mostsignificant risks.A step change in financing emerging and developingmarkets can accelerate the world’s efforts to tacklethe climate emergency. It’s here where there isthe greatest potential for low carbon technology.This, alongside the need for a just transition to aninclusive, net zero economy, brings huge potential forinnovationand growth.Finance is crucial to delivering the transition.A significant investment gap must be closed toaccelerate in these markets: only 10-20% of theUSD1.8 to USD3.0 trillion of capital required annuallyto deliver net zero by 2050 is currently flowing toAfrica, Asia and the Middle East (AAME).A dollar invested can have a significantlydifferent outcome depending on where and howit is deployed. It is with clients in emerging anddeveloping markets that sustainable investment canhave the greatest impact, as our Sustainable FinanceImpact Report highlights.We have made great progress in green financing,including increasing our portfolio of green assetsby nearly 140%* over the year to July 2021. But withmore than half of the CAPEX required to financethe net zero transition needed before 2030, there isan urgent need to finance transition activities thatsit outside those already covered by our Green andSustainable Product Framework.This document sets out how transition finance atStandard Chartered will be governed. We havealigned with the IEA Net Zero Energy 2050 scenario(“NZE”) and set out a number of well-definedprinciples that help guide our clients to a low carbonpathway. Transition and Green financing are themain levers to help us achieve our net zero targets.We will also be assessing our exposure to emissionintensive clients and/or assets and adding new lowcarbon intensity clients to our portfolio.We plan to mobiliseUSD300bnin green and transition finance by 2030According to our Zeronomics report,55%of executives told us their companies are nottransitioning fast enough to net zero, while78%of investors said most business leaders arefailing to take the action needed.*By asset value2

Standard Chartered Bank Transition Finance Framework 2021Our definition of transition financeAssets and activities which qualify for labelling as‘Transition’ will:Transition finance is any financial service providedto clients to support them align their business and/or operations with a 1.5 degree trajectory. Be compatible with a 1.5 degree trajectory,established by science; and,We recognise that global thinking around transitionfinance is still nascent and as such, we will evolve ourdefinition over time to ensure we remain in alignmentwith the latest science-based thinking on pathwaysto net zero by 2050.Principles of our approach totransition financeOur approach is based upon the NZE and has beeninformed by the best currently available information,including the Climate Bonds Initiative White Paperand Discussion Paper,1 the EU Sustainable FinanceTaxonomy and Consultation Report on TaxonomyExtension Options,2 and our own sectoral TransitionPlaybooks. Not hamper the development and deploymentof low-carbon alternatives or lead to a lock-in ofcarbon-intensive assets;3 and, Meet the minimum safeguards as defined in ourEnvironmental and Social Risk ManagementFramework.This Transition Framework is complementary toour Green and Sustainable Product Framework.Key elements of the NZE which are aligned toour Green and Sustainable Product Framework, suchas the rapid expansion of solar and wind energy,will remain labelled as Green / Sustainable.1Climate Bonds Initiative (2020) Financing Credible Transitions. Available online at: redtransitions final.pdfClimate Bonds Initiative (2021) Transition Finance for Transforming Companies. Available online at: ansforming-companies2EU Platform on Sustainable Finance (2021) Public Consultation Report on Taxonomy Extension Options Linked to Environmental Objectives.Available online at: ness economy euro/banking and rt-taxonomy-extension-july2021 en.pdfEU Taxonomy for Sustainable Finance Activities sustainable-activities en)3Considering the economic life of those assets.3

Standard Chartered Bank Transition Finance Framework 2021GovernanceWe have put in place robust governance processesto ensure that our Transition Framework remainsconsistent with the latest thinking in science andindustry.This Transition Framework has been reviewedand approved by the Group’s Responsibilityand Reputational Risk Committee (“GRRRC”),which ultimately reports to the Board. It will beoperationalised from the point of publicationthrough the Group’s Sustainable Finance GovernanceCommittee (“SFGC”), who will have final decisionmaking rights on labelling assets/activities as‘Transition’.On an annual basis, we will: Commission external verification / audit of ourprogress against our transition finance target. Thiswill include verification / audit of our Transitionasset base against this Framework. Update this Framework in line with the latestavailable science, and to reflect changes in thepace of technological developments acrossdifferent sectors and geographies. Whereindustry principles, guidelines and taxonomies aredeveloped, similar to those for green, social andsustainable finance, we will reflect these in ourFramework.4Annual updates to the Framework will be approvedby GRRRC.In addition to the annual updates to the Framework,we recognise that there may be transactions whichsit outside the initial list of qualifying activities set outbelow. In particular, the NZE is naturally focused onthe energy transition and there are therefore somesectors and technologies which are not reflected inthe analysis.As such, the SFGC will have ad-hoc decision-makingrights over the list of qualifying activities, and theability to label transactions as ‘Transition’ whereit is possible to demonstrate alignment with theprinciples set out above. Where required, SFGC willseek the support of third-party expert consultants toprovide science-based evidence.5Our Position StatementsAll transactions supported by the Groupmust align with our Position Statementsand minimum safeguards as defined in ourEnvironmental and Social Risk ManagementFramework. This includes alignment with ourClimate Change Position Statement whichrequires all clients in high-carbon sectors tohave a strategy to transition their businessin line with the goals of the Paris Agreement;and the same clients to report on currentgreenhouse gas emissions, preferably in linewith TCFD.In 2021 we have also tightened our positionon providing financial services to clientsdependent on thermal coal.Transactions aligned with our PositionStatements and minimum safeguards butwhich are not deemed eligible under ourTransition or Green and Sustainable ProductFrameworks will remain eligible for financingby the Group (subject to usual restrictions).We still expect a reduction in financedemissions across the Group’s portfolio in linewith our net zero targets.4In particular, we note the ongoing efforts of the EU Taxonomy Extension Project. Where such industry-level guidance is published, we will seekto make interim updates to all categories of eligible activity in the Framework with approval by GRRRC.5Where activities sit outside the NZE, we will use scenarios and guidance developed by globally accepted industry bodies where available.This gives confidence of a robust development process informed by recent climate science.4

Standard Chartered Bank Transition Finance Framework 2021Transition FrameworkProposed decision framework - asset based financingProposed assetIs the asset eligibleunder our Greenand SustainableFramework?YesProceed with assetlabelled Green/Social/SustainableNoIs the assetreflectedin the qualifyingactivities in ourTransition FinanceFramework(i.e. compatiblewith 1.5 degreetrajectory,established byscience, underIEA NZE 2050scenario)?YesAsset aligns withprinciples of dono significantharm?**YesDoes the client orgroup entity have,or is in the processof developing acredible climatetransition strategy?YesNoNoNoIs there a sciencebased argumentfor inclusionwithin theTransition FinanceFramework?*YesSFGC approves?YesYesYesNoDo not labelas TransitionSubmit to SFGCNoSFGC approves?YesProceed withasset labelled asTransition*We recognise that transition finance is an emerging topic and technologies to support the transition to net zero are rapidly developing. As such, where theremay be an omission from the qualifying activities set out under the Transition Finance Framework, it is expected that credible third-party evidence can beprovided as to the role of that technology/asset in the transition to a low carbon economy. **Is in keeping with the minimum safeguards as defined in ourEnvironmental and Social Risk Management Framework5

Standard Chartered Bank Transition Finance Framework 2021Qualifying Transition Activities6At present, the Framework has been designedfor asset-based financing only. We expect futureversions to consider eligibility of transition financingprovided for general corporate purposes to thoseclients with credible, science-based transitionstrategies, in line with the principles set out in theClimate Bonds Initiative Discussion Paper.7Qualifying transition activities have been selected asthose that align with the NZE.They are not reflective of the Group’s current creditrisk appetite, particularly in relation to longer-termsolutions such as hydrogen and CCUS, for which weexpect risk/return thresholds to improve over time inline with key levers such as carbon prices.These activities should be considered as a startingpoint. All assets being labelled as ‘Transition’ willremain subject to SFGC approval as set out above.ElectrificationHydrogenOf fossil fuel upstream operationsOf industrial equipmentEnabling infrastructure – new (e.g. hydrogenfuelling stations, import and export terminals,dedicated hydrogen pipelines)All end uses including space heating, waterheating, cooking, agricultural usesEnabling infrastructure – repurposing(e.g. of existing gas pipelines)Development of district heat networksNew hydrogen-based industrial plantsElectric steam crackers for high-value chemicalsproductionElectrolyser capacity at industrial sites(Advanced) bioenergyHousehold and village biogas digesters in ruralareasHydrogen use in refineriesHydrogen use in power plantsHydrogen use in cement factoriesBlending into gas networksBlending of hydrogen into natural gasReplacement of natural gas by biomethane as asource of process heat in industryGas-fired capacity: Retrofit to co-fire withhydrogenBiorefineriesElectrolyser capacity powered by low carbonsources other than renewables (e.g. nuclear)Biogas upgradingBiomass gasificationSwitch to low-carbon hydrogen from blue/greyhydrogenIntegration of cellulosic feedstock into existingethanol plantsSustainable aviation fuel (including biojetkerosene)For cookingBioenergy boilers6The qualifying transaction activities set out here provide an initial list as aligned to the activities set out in the NZE. As noted above,this is a non-exhaustive list and will remain open for evolution as scientific understanding and technologies develop.7Climate Bonds Initiative (2021) Transition Finance for Transforming Companies. Available online at: ansforming-companies6