Unleashing the power of financial markets for the green transition

Abstract

We are living through one of the warmest decades ever recorded, with climate-related natural disasters increasing in frequency and intensity. We are also losing biodiversity at unprecedented rates, with over a million species on the verge of extinction. Recent Australia and Amazon forest fires remind us that deforestation, often caused by agricultural and infrastructure expansion, is also a major driver of global heating and environmental degradation. According to the scientific community, limiting global warming and mitigating the effects of climate change will require a rapid and far-reaching transformation across the real economy if we are to reach the net-zero emissions target by 2050. To do so, we need to green our energy systems, decarbonize our heavy industries, integrate resilience into our building design, modernize our transport systems and shift how we produce our food. This will require strong and coordinated political leadership, changing consumer habits and bold businesses figuring out how to create value through sustainability. But none of this will happen – or happen fast enough – unless it is combined with rapid and widespread action from the financial sector. There has been growing momentum and countless new initiatives over the past years that are committed to “greening” the financial system. But it is not happening at the necessary scale, speed or ambition required. The financial system is only responding at the margin. We continue to invest in high-carbon industries, with greenhouse gas emissions at record highs in 2018 and coal finance still on the rise. Global climate finance flows dropped 11 per cent in 2018 to $546 billion1 largely due to falling spending on wind and solar and despite unprecedented efforts to install new renewable capacity. By comparison, the largest global banks have poured nearly $2 trillion into fossil fuel financing since the Paris Agreement was adopted, with financing on the rise each year.