Building credible phase-out plans CFPP early retirement transactions can be fraught with reputational risk for commercial investors, given that financing phase-out often requires new lending or acquisition of equity in an asset. This leaves commercial finance institutions open to accusations that they are continuing to invest in fossil fuels. As part of their Net Zero commitments and efforts to reduce on-balance sheet financed emissions, many commercial finance institutions have introduced thermal coal exclusion policies. These prevent them from investing in CFPPs or entities with substantial exposure to coal power. Taken as a whole, these represent commendable efforts to decarbonize the finance sector. However, given their blanket coverage, these commitments prevent many international commercial financiers from participating in coal phase-out because of the risk that coal phase-out financing will be conflated with traditional financing of coal power. A small number of financiers have taken the courageous step of carving out room for financing phase-out within their coal exclusion policies, and have also been clear about how financing coal phase-out is distinct from traditional investment in thermal coal and why it is needed. Yet, reputational concerns continue to prevent many from considering phase-out projects, inhibiting the flow of finance. Guarding against reputational risks and delivering genuine emissions abatement requires financiers to address two major questions: 1. Does the financing credibly contribute to real- world emissions reduction by bringing forward the CFPP closure? 2. How can financiers be confident that planned abatement impact will be delivered once the phase-out investment is made? To help financiers navigate these complex challenges, standard-setters and regulators – including the Glasgow Financial Alliance for Net Zero (GFANZ),31 ASEAN Taxonomy Board32 and Monetary Authority of Singapore (MAS)33 – have developed criteria to guide financing of CFPP phase-out mechanisms focusing on the credibility of carbon abatement plans. These can help financiers and asset owners chart the criteria they need to ensure their investments deliver real-world emissions reduction without resulting in increased emissions elsewhere, as well as being classified as transition finance. 3 Scaling Financing for Coal Phase-out in Emerging Economies 21

Scaling Financing for Coal Phase out in Emerging Economies 2025