Global | The contribution of sustainable finance to the transition to a low-carbon economy

Summary

The development of sustainable finance is gathering pace, driven by a strong appetite from investors and a high level of ambition in climate policies. However, it is not enough for the investment needed for the energy transition, which requires removing the existing obstacles with decisive measures.

Key points

• Key points:
• The development of financing to environmentally and socially sustainable activities reached $1 trillion in the first three quarters of 2021, comfortably surpassing the $720 billion for all of 2020, according to the Institute of International Finance (IIF).
• However, only achieving net-zero emissions in 2050, a goal consistent with the Paris Agreement's temperature target, will require additional investments in energy supply of about $960 billion on average annually in 2021-2030, according to the Network for Greening the Financial System (NGFS).
• Empirical evidence is mounting of how companies are effectively rewarded for their environmental commitment with more favorable access to bank financing, at least in syndicated loans granted by banks that are also environmentally committed.
• The transition to a carbon-free economy requires technical and financial support to developing economies, both for efficiency and fairness reasons.
• A comprehensive set of global, credible and sustained long-term climate policies, built around a price on CO2 emissions sufficient to provide the appropriate profitability, and therefore financing, incentives for environmentally sustainable investment projects, is needed.

Geographies

Topics

Tags