Credible transition plans for coal power sector: current disclosure framework and considerations for transition finance

Abstract

The zero-carbon transition of the coal power industry comes with substantial economic costs, both in terms of the cost of stranded assets and the innovation and application of carbon reduction, zero-carbon, and decarbonization technologies. Mobilizing social capital through transition finance is crucial to support companies in their efforts to reduce carbon emissions. The lack of high-quality data and consistent, comparable disclosure frameworks hinders proper due diligence and strategic planning, presenting a major obstacle to financing the transition. To identify the mismatches between existing disclosure frameworks for transition plans and the needs of transition finance, we conducted a systematic review of various transition disclosure frameworks, such as TCFD (Task Force on Climate-Related Financial Disclosures), CA100+ (Climate Action 100+) and TPT (Transition Plan Taskforce), and compared them with the information requirements of financial institutions for assessing coal phase-out plans of production entities. The results indicate that the ex-ante assessment of transition finance requires disclosure frameworks to be further expanded and aligned in areas such as technological distinctions and data quality to meet the demands of pricing, risk management, new product innovation, and disclosure of financial institutions’ carbon footprints in their asset portfolios. Moreover, the implementation of the current disclosure standards by coal power enterprises may encounter dual constraints from soft regulatory practices and the external business environment, resulting in the emergence of the “green silence” phenomenon. The inconsistency between disclosure frameworks may also give rise to regulatory arbitrage, leading to a distorted evaluation of the transition process of coal power enterprises by the capital market, resulting in potential price distortions and credit risks.