Financing the net zero transition: Opportunities and pitfalls
The Intergovernmental Panel on Climate Change's recent stock take of global emissions warned that we are nowhere near close to limiting global warming to under 1.5 degrees Celsius by 2050. Without immediate and deep emissions reductions across all sectors, this threshold is beyond reach within the timeframe.
While climate action has gained momentum globally, it is not growing at the desired pace. Net zero pledges cover some 90 per cent of global GDP today, but the road ahead is fraught with challenges, disrupted by global events such as Covid-19, the war in Ukraine and the wider structural problems around financing.
Experts estimate that about US$50 trillion in investments is required by 2050 to transition the global economy to net zero, but the funding is falling short due to lack of collective effort from the global community. Regressive government regulations are huge barriers, with many countries still providing fossil fuel subsidies, and while research and development into newer green technologies is urgently needed, many investors fear that early movers may suffer losses from technological obsolescence.
Despite the risks and pitfalls, this transition offers us the investment opportunity of our generation. A recent Asian Development Bank report estimates that a green recovery from the Covid-19 pandemic in the Southeast Asia region has the potential to create US$172 billion in investment opportunities annually and generate more than 30 million jobs by 2030. Furthermore, Bloomberg estimates that renewable energy will account for over 55% of the global total installed capacity by 2030 and 74% by 2050. In this discussion, we will explore specific actions to overcome the obstacles in the net zero transition and highlight potential areas for investment.
