This article presents UNEP FI’s tenth recommendation on credible net-zero commitments as outlined in a UNEP FI input paper to the G20. The eleven recommendations, alongside this series of articles, aim to support policymakers in understanding the progress in net-zero finance to date and how to scale up the global transition to a net-zero economy.
Strategic capital allocation
It is essential for financial institutions to carefully manage their portfolio decisions in light of their transition targets. For example, withdrawing capital too rapidly from certain high-emitting counterparties that do have transition potential or allocating capital to counterparties without credible transition plan, might impede the transition objectives. Therefore, outlining transition strategies in line with the financial institution’s business model will facilitate portfolio decisions. The emphasis on “transition finance” is particularly critical in the early years of the transition when real-economy actors require funding to deploy their business model transformations. To direct financing to the most urgently needed technology and research and development (R&D) investments, two elements are crucial:- Understanding the decarbonization potential of the sector and the individual counterparty via sectoral transition pathways and company-specific transition plans.
- Proactively engaging with hard-to-abate sectors like shipping, transport and steel as well as with the individual counterparties.
Seizing net-zero opportunities through innovative financial solutions
As the entire economy is transitioning, clients across various sectors are increasingly seeking financial support and expertise from their financial institutions. This presents an excellent opportunity to create a range of solutions that support clients’ business model transformation while progressing towards the financial institution’s transition targets. These solutions may cover both:- Targeted financial solutions such as green loans, bonds and specialized lending solutions
- Non-financial advice and technical assistance
.