ING’s James Poon: Transition Finance Supports Companies Entering a New Stage in the 15th Five-Year Plan

2026 marks the first year of China’s 15th Five-Year Plan. High-quality development, technological innovation and green transformation have become deeply embedded in China’s economic and social development, and Chinese businesses are embarking on a new wave of transformation and upgrading. The criteria for assessing corporate competitiveness are also changing. Whereas business scale and profitability were once the primary metrics, technological innovation, supply-chain resilience and sustainability are increasingly becoming benchmarks for evaluating a company’s long-term value.

This shift is also redefining the relationship between businesses and financial institutions. Faced with transition initiatives that take longer, require greater investment and involve more complex pathways, businesses need more than funding: they need long-term partners who understand industry trends, can identify transition risks and can connect them with global resources. For financial institutions, competitiveness is no longer measured solely by the provision of financing, but by their ability to integrate industry insight, risk-management experience and sustainable-finance capabilities into clients’ business development.

The key to transition finance is not to label more assets as “green”, but to enable carbon-intensive companies to pursue credible, measurable and bankable transition pathways

For sectors such as manufacturing, energy, chemicals and transportation, industrial upgrading often requires sustained investment in research and development, equipment renewal, process improvements and changes to the energy mix. Such projects typically have long investment cycles and take time to generate returns, meaning traditional short-term financing or a single financing instrument may not be sufficient. As a result, businesses’ financing needs are shifting from supporting expansion to comprehensive financial solutions aligned with long-term strategies and industrial transition.

Changing financing needs are also prompting financial institutions to refine their assessment approaches. In addition to traditional indicators such as historical business performance and debt-servicing capacity, the clarity of a company’s decarbonisation pathway and the feasibility of its transition plan are increasingly important in assessing its long-term financing potential. ING’s work with Chinese businesses illustrates this shift: drawing on industry research, risk analysis and cross-market resources, ING helps companies develop long-term financing arrangements that reflect industry realities, can be implemented in practice and can be verified over time.

In recent years, green finance has grown rapidly in areas such as renewable energy, clean transportation and green buildings. In 2025, ING’s global sustainable financing volume reached €166 billion, up 28% year on year. The Asia-Pacific region accounted for 11% of the total, setting a new record for the region. According to the People’s Bank of China, the outstanding balance of green loans denominated in domestic and foreign currencies in China reached RMB 44.77 trillion at the end of 2025, an increase of 20.2% year on year. As China’s new-energy industrial chain matures, related businesses are seeing growing demand for long-term capital, financing for technological upgrading and coordinated support across the industrial chain. At the same time, the rapid development of emerging industries is creating new green-transformation needs. The accelerated adoption of artificial intelligence is increasing energy consumption at data centres and other infrastructure facilities. Improving energy efficiency, expanding the use of renewable energy and reducing operational emissions have therefore become pressing issues for the technology, media and telecommunications sector.

However, green transformation does not mean supporting only emerging industries that already have green attributes. Estimates by the International Energy Agency (IEA) of China's energy-related carbon emissions in 2019 indicate that coal-fired power generation, steel, cement, chemicals, refining and petrochemicals together accounted for around three-quarters of those emissions. Progress in transitioning these sectors directly affects the quality and pace of the economy-wide green transformation. Compared with emerging industries that already have green attributes, these sectors differ significantly in technological readiness, emissions-reduction costs and routes to commercialisation, and their transition typically takes longer.

This is where transition finance adds value. It does not require companies to meet green standards immediately; instead, it focuses on whether they can move steadily from their existing business models towards low-carbon development along a credible pathway. This is the fundamental distinction between transition finance and green finance: green finance supports projects that are “already green”, while transition finance supports businesses that are “becoming greener”. Financial institutions need to understand technological developments and practical constraints across industries, and assess whether transition targets are reasonable, whether the pathway aligns with a company’s strategy and whether disclosures are transparent. Supporting hard-to-abate sectors does not mean relaxing risk-control standards. On the contrary, banks need to deepen sector analysis and engage more closely with clients to identify genuine transition intent, implementation capacity and long-term potential, while effectively managing environmental and social risks. Transition finance therefore cannot apply a one-size-fits-all approach. Industries differ in technological maturity, emissions-reduction costs and asset-renewal cycles. Only by setting phased targets based on sector-specific realities can transition finance balance credibility with commercial viability.

For transition finance to work in practice, long-term corporate transition goals must be translated into measurable indicators. A Sustainability-Linked Loan (SLL) is one representative instrument. It links financing terms to a company’s pre-defined sustainability performance targets, such as reducing carbon-emissions intensity, improving energy efficiency or increasing the share of renewable energy, thereby encouraging the company to incorporate sustainability into its business decisions and long-term strategy.

Setting ESG indicators alone does not ensure an effective link. Targets must be closely tied to a company’s core business and sector characteristics, while being measurable, comparable and sufficiently ambitious. Banks therefore need to move beyond providing funds to help clients identify material issues, design appropriate indicators, assess technological, market and execution risks, and establish a full-cycle mechanism covering pre-financing assessment, monitoring during the financing period and post-financing disclosure. Target design should account for both emissions-reduction outcomes and the transition process. In addition to emissions intensity, process indicators such as low-carbon capital expenditure, progress in key technological upgrades and the share of renewable energy used can provide a clearer picture of whether substantive transition is taking place.

In this process, financial institutions are exploring more systematic frameworks to assess corporate transition pathways. ING, for example, uses its Terra approach to examine low-carbon transition pathways in key sectors and assess how relevant financing portfolios align with global climate goals. It also relies on its Environmental and Social Risk (ESR) Framework to identify and manage environmental and social risks associated with financing activities. Based on these approaches, financial institutions can take account of clients’ business models, sector characteristics and stages of development to help translate sustainability goals into actionable financing strategies and implementation pathways.

Across the Chinese mainland and Hong Kong SAR, ING is also exploring ways to connect sustainability goals with financing arrangements. In 2023, ING supported Ant Group in completing a US$400 million sustainability-linked derivatives transaction, incorporating targets such as data-centre server efficiency into an interest-rate swap and establishing a two-way incentive mechanism. More recently, for HGC Broadband's HK$7.46 billion sustainability-linked loan, ING acted as the syndicate's sole sustainability coordinator and incorporated the EcoVadis rating as a key performance indicator. These examples show that transition finance can deliver sustainability outcomes only when it is linked to a company’s core business and industrial direction.

Scaling up transition finance also depends on collaboration among domestic and international financial institutions. For projects involving emerging technologies or long investment payback periods, financial institutions can use blended finance and work with multilateral development banks (MDBs) and other institutions to share risks and improve project viability. The Transition Accelerator initiative also supports the development of emerging sustainable technologies and business models; such initiatives are expected to see wider application across Asia-Pacific in the coming years.

International financial institutions bring global networks, cross-market experience and specialist sector expertise, while Chinese financial institutions have deep knowledge of local clients and industries. These complementary strengths can provide businesses with more diversified financial support and create opportunities for cooperation in sustainable finance and cross-border finance.

In the 15th Five-Year Plan period, technological innovation, low-carbon development and long-term competitiveness will become increasingly intertwined. Green finance will need to do more than support established green industries; it must also help traditional industries explore sustainable transition pathways. According to data from the Research Bureau of the People's Bank of China, as of August 2025, transition-finance standards had been piloted in more than 20 regions, with approximately RMB 67 billion in transition loans disbursed and bank credit facilities of around RMB 125 billion granted. At the same time, transition-finance standards still need further development. The industry needs a clearer and more credible framework, using scientific and quantifiable indicators to identify companies with genuine transition intent and the ability to act, and using ongoing disclosure to track financing progress and target achievement, thereby reducing the risk of “greenwashing”.

This is particularly important for Chinese companies expanding into international markets. As markets around the world raise their expectations for corporate environmental standards, disclosure and supply-chain management, carbon data and transition plans are becoming a common language for cross-border financing, investment decisions and supply-chain cooperation. Establishing comparable and verifiable transition-information systems is not only a way to align with international rules; it can also strengthen Chinese companies’ access to financing and long-term competitiveness in global markets.

Having served the China market for more than 35 years, ING has witnessed domestic companies’ financial needs evolve from relatively straightforward requirements to more integrated needs spanning markets, products and industries. Drawing on global sector expertise and sustainability frameworks, international financial institutions can connect resources in China and overseas and help companies translate transition goals into capital-expenditure plans, financing metrics and actionable pathways.

Looking ahead to the 15th Five-Year Plan period, transition finance will provide lasting momentum for the next stage of China’s economic growth. The value of financial institutions lies not only in providing capital, but also in helping businesses build the capabilities needed for a low-carbon future. As corporate priorities and financing needs evolve more rapidly, financial institutions should deepen cross-market collaboration and provide more diversified and targeted financial support to help Chinese businesses achieve a green, low-carbon transformation and high-quality development.