Sustainable Finance News from the Grantham Research Institute, LSE

May 2019
Getting to net-zero is a major theme in this month’s update in which Spanish government minister Teresa Ribera calls on the financial sector to seize the strategic opportunity to drive the net-zero-carbon transition. Josh Burke considers what exactly is net zero and what are the challenges to achieving it, while Sam Unsworth looks at the implications for UK business. We also feature Nick Robins and Matthias Täger, who introduce a new global research network focused on greening the ?nancial system.
A renewal of purpose: why finance must embrace its role in the ecological transition
By Teresa Ribera, Minister for the Ecological Transition of Spain
The significant financial risks from climate change are well understood. Now the financial sector must seize the strategic opportunity to drive the net-zero-carbon transition, supported by government through clear policy signals and regulatory frameworks, says Teresa Ribera in this post for the Sustainable Finance Leadership Series.

The transition towards a net-zero-carbon, climate-resilient and sustainable future is offering a unique strategic opportunity for the financial sector to reconnect with the needs of the real economy while ensuring its financial viability in the medium and long term. That climate change poses significant financial risks, endangering the stability of the global economy, is understood. The good news is that the signals coming from financial actors are very positive and show a clear direction of travel, in line with climate goals. Clear policy signals, such as those given by the Spanish Government through its Strategic Framework for Energy and Climate, are key to realising this transformation and to promoting the alignment of policies and investment decisions with the decarbonisation of economies.
The ecological transition is advancing worldwide, although at a slower pace than desired. More needs to be done if we want to win the race and meet the 1.5°C target established under the Paris Agreement (PDF). This process of change will enable the modernisation of economies, and promote new growth and employment opportunities as well as environmental sustainability.

Combining forces and accelerating action is now critical. According to the Organisation for Economic Co-operation and Development, the world needs around US$ 6.3 trillion of investment in infrastructure by 2030 to limit global warming to below 2°C. Public finance alone is not enough. The financial sector has a key role to play; boosting private capital is essential for supporting the transition. And the transition provides the financial system with an unprecedented strategic opportunity in terms of economic returns and financial sustainability, and also to renew its overall purpose. The myth that projects that support sustainability are less profitable than traditional ones has been exposed: in fact, most have proven to be more profitable and sustainable in the long term.

Now is the time to reconnect the financial system with the needs of the real economy, which is undergoing a deep transformation that must take into account social and environmental factors if it is to succeed. The sector needs to assimilate this process and redirect financial flows towards sustainable activities, steer capital away from high-carbon assets and provide itself with a long-term strategic green view that reduces its exposure to climate risks.
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