Bridging the climate finance gap will require more than commitments

Despite commitments recently announced from the financial sector, there remains a finance gap of trillions of dollars per year in climate-related investments to achieve an orderly transition to net zero. Policymakers, regulators and financial institutions all have important roles to play.

11 November 2021

To achieve these numbers, policymakers will need set a global price on carbon at about USD 100 by 2030, compared to an implied global average of USD currently. Additionally, there is a need for more coverage of global CO2 emissions, with current policies covering a mere 20% at present.

Within the financial sector, more clarity on green and brown exposures is still necessary. Both green and brown taxonomies will provide better insight into banks’ current exposures to ensure management teams are actually walking the walk.

As more environmental pledges are made, the need for action follows. This action involves credible science-based pathways to reach net zero. Ultimately, financial institutions have a major role to play in supporting the transition – by directing the flow of the capital. We’re moving in the right direction, but much more is needed. Bridging the gap between pledges and action still requires efforts from policymakers, regulators and financial institutions themselves. As investors, we need to provide capital to issuers who will play their part – not only because this is needed to successfully transition to net zero, but also because those not stepping up will be left behind, with severe financial consequences.