The global transition finance ecosystem is gaining momentum.

According to new research by the Hong Kong Institute for Monetary and Financial Research (HKIMR), the research arm of the Hong Kong Academy of Finance (AoF), 60% of financial services stakeholders are already active in or exploring transition finance developments, and Asia-Pacific (APAC) among the most engaged.

The findings are based on a survey conducted in December 2025 and January 2026, involving more than 1,000 respondents from banks, insurers, asset wealth management firms, and other major global stakeholders. It also incorporates individual and focus group interviews with 110 global market participants to examine current practices, opportunities, challenges, and the future outlook for the transition finance ecosystem.

Transition finance refers to the financing of activities that are not yet environmentally sustainable but which are committed to credible, science-based decarbonization pathways. It aims to provide tailored financial instruments and capital for these activities, enabling an orderly structural transformation of these sectors. As such, transition finance serves as a critical complement to green finance, which focuses on inherently sustainable projects.

The HKIMR research reveals regional variations in transition finance engagement. The APAC region demonstrated a meaningful level of participation, with 78% of respondents in the region either active in or planning to engage in transition finance. Europe, meanwhile, leads among developed markets at 80%. Africa and the Middle East showed the highest levels of engagement among the regions studies at 85% and 83%, respectively.

Looking at the primary mechanisms for channeling capital towards transition activities, the study found that equity and fund investments (59%), together with debt instruments (55%), were the most mentioned by respondents. These are followed by carbon and environmental markets (34%), supply chain or trade finance solutions (25%), and blended or risk-sharing approaches (20%).

These results suggest that equity and debt are important for scaling transition finance, while trade finance, blended finance approaches, and carbon finance instruments can provide an important pathway to net zero transition in higher-risk or frontier markets.

Interviews with industry stakeholders reveal that sustainability-linked bonds (SLBs), sustainability-linked loans (SLLs), and green bonds dominate the largest economies in Southeast Asia, driven significantly by issuers from the Chinese Mainland, Hong Kong, Japan, and South Korea.

In Japan, interviewees highlighted that transition bonds and loans are favored by large companies in high-emitting sectors, as securing adequate funding solely through conventional green financing channels remains challenging.

Market outlook and future trends

The HKIMR survey findings reveal a generally positive sentiment among global industry stakeholders. Around 74% of respondents expect a stable or growing global transition finance market over the next three years.

Confidence is strongest in the APAC region, with 91% of respondents anticipating growth or sustained activity. While broadly sharing this sentiment, European respondents exhibited a more measured outlook than their counterparts in other regions, with 87% anticipating growth or sustained activity.

In contrast, North America is the only region where fewer than 60% of the respondents expect growth or stability in the transition finance market within the next three year. The figure is below the global average.

Respondents who anticipate market growth identify digital tools and data platforms as the key emerging trend shaping the transition finance ecosystem, cited by 42% of respondents. This is followed by taxonomies, guidance, and standards at 37%, and credible transition plans at 34%.

When asked to identify sectors with the strongest growth potential, respondents pointed to power and utilities sector as the leading opportunity (55%), followed by technology and industrial innovation (33%), oil and gas or energy extraction (29%), transport (27%), and manufacturing (23%).

Opportunities and challenges

Findings from the study reveal that the development of transition finance presents significant opportunities for financial institutions and the wider economy. The primary benefit, cited by 37% of respondents, is the support of innovation and competitiveness in sustainable technologies. This includes the research and development (R&D) and the commercialization of innovative low-carbon solutions, such as renewable hydrogen, carbon capture and storage solutions, and smart grid infrastructures.

Another key benefits cited by 33% of respondents is that the transition finance can expand new business and opportunities. This includes opening up new revenue streams for financial institutions and offering more flexibility to align with the unique decarbonization pathways of different sectors.

However, the sector also faces notable hurdles. The most critical concern, raised by 46% of respondents, is limited client interest or market demand. This concern could stem from uncertain long-term benefits of engaging in transition finance, or fears of reputational risks and regulatory scrutiny when investing in or financing companies that operate in high-emitting sectors.

For 33% of the surveyed market respondents, the lack of comparable data or metrics for transition performance is a major obstacle. Interviewees believe that the main barrier is not merely the quantity of data but rather the need to effectively connect climate-related data to financial impacts and valuation changes to drive informed transition investment decision. Stakeholders also emphasized inconsistent reporting, and a lack of trust in reported sustainability performance as key challenges.

In Hong Kong, policymakers and financial regulators have taken proactive steps to align with global sustainable finance standards. Initiatives such as the development of a local taxonomy for sustainable finance, a roadmap for sustainability disclosure, and guidelines on climate-related risk governance, transition planning, and climate transition finance, have laid a strong foundation for climate transition finance.

Featured image: Edited by Fintech News Hong Kong, based on image by 21studio via Freepik