The transition to a net zero economy is a pressing global challenge that requires substantial capital support from the private sector. Financial institutions have the opportunity to play a pivotal role in this transition and achieve substantial gains. By adopting a sustainability-first approach, they can mitigate risks associated with climate change and tap into lucrative markets that prioritize environmental responsibility.
The potential for economic growth through sustainable investments is immense, and the time to act is now.
Learn more about how the banking industry can position themselves for the future in Sustainable finance revolution: how banks can profit from sustainable growth.
Key themes
Urgent need for climate finance:
There is a critical requirement for substantial capital to facilitate the transition to a zero-carbon future. Some experts believe three times the current global spending is necessary to meet Paris Agreement commitments.
Role of banks in sustainable finance:
The financial services sector is witnessing a surge in demand for sustainable finance solutions, presenting banks with the opportunity to lead in decarbonization initiatives while managing risks and stakeholder expectations to achieve net zero goals.
Investment opportunities across sectors:
KPMG has identified four essential areas of sustainable finance that present examples of how banks can crystallize their sustainability lens: agriculture, adaptation, infrastructure and retail housing. Real word examples demonstrating the breadth of opportunities of investment with convincing returns and discernible climate-positive impacts are presented.
Building a sustainable financial ecosystem:
A successful economic transition requires banks to integrate sustainability throughout their value chain, utilizing advanced credit-decisioning, risk pricing capabilities, and innovative products to effectively support customers in their decarbonization efforts amidst the complexities of transition finance.
Belgian banks, like their European counterparts, have made commendable progress in integrating Environmental, Social, and Governance (ESG) criteria into lending decisions and processes. In recent years, these processes have been updated to incorporate climate considerations while maintaining a delicate balance with social priorities. Efforts have primarily focused on critical sectors where Belgium needs to reduce greenhouse gas (GHG) emissions to align with the Paris Agreement, such as improving energy efficiency in the residential real estate market. These initiatives not only aim to make an impact but also help banks manage transition risks and build long-term resilience. However, despite these efforts, a significant financing gap remains between current green financing levels and the volumes required to achieve Paris Agreement alignment. Addressing this gap involves a dual imperative: stimulating a broader societal transition to increase the availability of green products, which in turn enables banks to continue acting as catalysts, directing financial flows toward sustainable activities.
Key areas of opportunity
KPMG has identified four essential areas of sustainable finance that present examples of how banks can crystallize their sustainability lens. These have been identified based on their climate impacts, the importance within bank balance sheets and the difference they make to banks’ customers and stakeholders.
Agricultural finance
Agriculture finance is vital not just because of its contribution to emissions, but also in climate change adaptation and mitigation efforts, supporting sustainable practices that enhance resilience against climate impacts. It enables investments in technologies and practices crucial for reducing emissions, improving food security, and promoting environmental sustainability in agriculture.
Adaptation and resilience
Adaptation and resilience refers to financial resources dedicated to helping countries, communities and businesses adapt to the impacts of climate change. This can include funding for infrastructure improvements, new technologies and capacity-building initiatives that increase resilience to climate change impacts. An ideal model combines funding from the public sector, the private sector and financial services sector.
Infrastructure finance
Investing in sustainable infrastructure is critical for mitigating the impact of climate change. Sustainable investment in the construction and maintenance of infrastructure will help to develop new and more sustainable methods and technologies, leading to a lower carbon footprint.
Retail housing
Greening retail housing involves making residential buildings more environmentally sustainable by integrating energy-efficient features, water conservation measures, and sustainable materials, addressing the significant GHG emissions from the buildings sector, which is crucial for long-term climate risk mitigation as urban housing demand increases.
