What are the benefits and challenges of net zero financing?
Benefits
Climate mitigation
Financing in net zero contributes to global efforts to mitigate climate change by supporting projects and technologies that reduce or eliminate greenhouse gas emissions. This can include investments in renewable energy, energy efficiency and sustainable transportation.
Market opportunities
The transition to a net-zero economy creates new market opportunities for clean energy and sustainable technologies. Investors can benefit from the growth of industries focused on reducing environmental impact.
Regulatory compliance
Many governments and regulatory bodies are implementing policies to address climate change. Financing in net zero can help companies comply with these regulations and avoid potential legal and financial risks associated with non-compliance.
Enhanced reputation
Companies that align with net-zero goals may enjoy enhanced reputations and improved stakeholder relationships. Investors and consumers increasingly value environmentally conscious businesses, leading to potential long-term brand loyalty.
Innovation and research
Financing encourages innovation in clean technologies and sustainable practices. This can drive research and development, leading to the discovery of new solutions for mitigating climate change.
Challenges
Policy restrictions
The UK’s net-zero goal is not yet embedded in the financial system as an objective that shapes behaviour to the same degree as the management of climate risk.
Unpredictable markets
Market, policy and institutional failures across the economy continue to undermine predictable cash flows for net-zero options.
Setbacks from COVID-19
COVID-19 has delayed climate action, shaken confidence and the desire to invest; a green stimulus could be followed by green austerity.
Flawed financial culture
Net-zero has not yet become the norm wither within financial culture or within external relationships with customers and investments.
Physical risks
Climate change can lead to physical risks such as extreme weather events, sea-level rise and resource scarcity. Companies with assets vulnerable to these risks may face financial losses if they are not adequately prepared.