Green transition prospects and challenges

Context

The transition to a low-carbon economy has become a global priority in the fight against climate change. One of the main challenges of the transition to net zero is to mobilise private capital to finance sustainable initiatives. It is therefore important to find ways of integrating a responsible and sustainable approach into financial activities, combining active management of decarbonisation, responsible financing, and the greening of portfolios.

EU regulators have adopted various regulations and standards to encourage private investment in the transition to a climate-neutral economy. These include climate-related disclosure, EU sustainability labels and standards, and the EU taxonomy for sustainable activities and green bonds. These measures aim to create transparency on sustainability risks and opportunities, facilitate a structured dialogue between stakeholders, and support the transition of economies. Yet, one still has to make an important effort to implement them to leverage the related expected added value.

In addition, though their objectives in some cases mainly address risk mitigation concerns at the global level, various initiatives have been set up to accelerate the transition, such as the Network for Greening the Financial System (NGFS), the Glasgow Financial Alliance for Net Zero (GFANZ), and the Transition Pathway Initiative (TPI). These initiatives are contributing to the development of robust transition scenarios, sector-specific trajectories, and mandatory disclosure standards.

However, these varied initiatives may have adverse consequences for financial players that should be addressed. Objections have been raised over a possible conflict between financial institutions’ sustainability ambitions and their traditional objectives of return and security.

A concern also stems from the need to maintain an appropriate level of financing for transitioning industries and even for so-called brown industries, given the actual pace for switching to renewables.

Finally, the transition to net zero requires careful consideration of optimal and consistent transition and adaptation strategies in the areas of technology, economy and social, as well as clear communication to inform all stakeholders. In this respect, it is crucial to address the many uncertainties and risks associated with such an unprecedented socio-economic transformation which is highly dependent on a wide range of innovative technologies still in the making. One essential political issue is also to set the condition making the pace of investments made for the ecological transition globally, as well as in the countries of the Union, sufficient considering the needs identified.

It is worth mentioning that an effective transition also requires factoring in that Small and medium-sized enterprises (SMEs) play a key role in the transition to net zero. However, they face specific challenges, such as limited access to sustainable finance, the complexity of regulations and standards, and the need to adopt new business practices. It is essential to support SMEs in their transition by providing appropriate resources, advice, and incentives. This will strengthen their resilience and encourage their active participation in the transition to a low-carbon economy.

Eurofi documents

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

SHIGERU ARIIZUMI - Vice Minister for International Affairs – Financial Services Agency, Japan (J-FSA)

Priorities for developing transition finance - September 2024 new

Challenges facing the EU sustainability approach - September 2024 new

Remarks on green transition - September 2024 new

Shigeru Ariizumi - Vice Minister for International Affairs, Japan FSA

Transition planning in the financial sector - February 2024

Jean Boissinot - Banque de France | José Manuel Campa - European Banking Authority (EBA) | Antoine Van Cauwenberge - Financial Services and Markets Authority, Belgium (FSMA) | Eric Campos - Crédit Agricole S.A. | Erik Ljungberg - Swedbank | Shinichi Tsunoda - Mizuho Financial Group, Inc. / Mizuho Bank, Ltd.

Finance and nature - February 2024

Sylvie Goulard | Nathalie Borgeaud - Taskforce on Nature-related Financial Disclosures (TNFD) | Philippe Blanchot - Caisse des Dépôts (CDC) | Sinthuja Yogarajah - Federated Hermes Limited | Hirotaka Hideshima - Norinchukin Bank

Supporting the green transition - September 2023

Sylvie Goulard | Carlos Cuerpo Caballero - Ministry of Economy and Digitalization, Spain | Harald Waiglein - Federal Ministry of Finance, Austria | Gerassimos Thomas - European Commission | Javier Rodrigo Soler - Banco Bilbao Vizcaya Argentaria (BBVA) | Hani Kablawi - The Bank of New York Mellon | John Murton - Standard Chartered Bank

Transition of financial activities towards net zero - September 2023

Richard Knox - HM Treasury | Takanori Sazaki - MUFG Bank, Ltd. | Benoît de La Chapelle Bizot - BPCE

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