Green finance has grown rapidly the last years. The green bond market for example, skyrocketed from US$11bn of issuance in 2013 to US$162bn in 2017, with low-carbon investments being the primary focus of the market. Institutional investors are investing in green, engaging with companies, setting examples for best-practice climate disclosure and undertaking policy advocacy.
Banks offer low-carbon products and services to corporates. Rating agencies are integrating environmental risks in rating methodologies. Stock exchanges are encouraging disclosure on climate performance. Finance sector players are supporting decarbonisation both to reduce climate change risks, including physical risks, transition risks and liability risks, and to increase business opportunities, by enabling clients to do the same. The challenge is for the finance sector to scale their efforts and increase their ambitions to align with climate targets and the latest climate science.
Despite the recent rapid growth in green finance, decarbonisation rates globally are way behind what is required to meet the global climate target of limiting global warming to at least 2 degrees Celsius, as set out in the 2015 Paris Agreement on Climate Change. The challenge: How might the finance sector better enable companies to decarbonise?