For instance, an electricity generator replacing coal-fired power with natural gas would reduce emissions in the near term. But it would likely not be considered an ambitious transition if the gas-fired asset has a 30-year lifespan during which time it cannot be replaced by renewables.

Organisation for Economic Cooperation and Development (OECD) guidance on transition finance supports the view that “corporates can and should pursue a multitechnology approach to mitigation”, and specifically that the industrial sector “will require a portfolio of solutions, ranging from energy efficiency improvements in production processes, shifting the power and heat supply from fossil fuels to renewables and renewables-based electrification, switching to low-carbon and renewable feed stocks, and deploying carbon capture use and storage, to increasing the reuse and recycling of materials”.

However, equally important is the context that “it will be essential to avoid investments in emission reduction opportunities that have the effect of locking in emissions”. The OECD says will slow down the adoption of net zero alternatives and result in assets having to be replaced before the end of their natural lifespan.

Lock-in, the OECD guidance continues, is effectively the other side of the same coin as stranded assets – the two being “two of the main factors contributing to risks of greenwashing” in the transition finance universe. “This risk may be increased when private investors or financial institutions have a stake in [locked-in] assets, as they will have an incentive in continuing the asset’s operation until the end of its useful life,” the OECD guidance document warns market users.

This type of dead-end transition would also be a counterproductive use of labelled finance. Isabelle Laurent, deputy treasurer at European Bank for Reconstruction and Development, and chair of the International Capital Market Association principles executive committee, said at the Singapore conference: “An original decision of the principles – and one that was affirmed this year – is that anything that contributes to a substantial carbon reduction is, in effect, green. But if we are talking about a hard-to-abate sector, it also cannot have a ‘lock-in’ effect.”