How banks can channel finance for a just transition everywhere

15 Nov 2022

With the right approach, banks can help support a just transition enabling economic development to continue at pace while securing the future of the planet.

As global efforts to slow climate change intensify, banks are leveraging their ability to mobilise capital at scale to accelerate the net-zero transition. But to foster innovation and economic development, fresh approaches must be found to help emerging markets reach net zero without harming their growth or prosperity.

Faced with increased extreme weather events, record greenhouse gas concentrations and a growing energy crisis, the world has woken up to the imperative of net zero. To make real change at the speed and scale needed, the power of the banking industry must be harnessed to channel capital to where it is needed most and finance the new technologies and business models that can underpin the solutions of tomorrow.

There is a huge opportunity for impactful investments to be made in markets across Asia, Africa and the Middle East, which are most at risk from climate change and other inter-related social challenges. However, these markets are often starved of critical decarbonisation and adaptation-focused capital flows.  

With emerging markets in need of USD 95tn to reach net zero by 2060, according to Standard Chartered research, supporting the transition to low-carbon business models around the world represents both a challenge and an opportunity for banks. With fresh perspectives and new financing approaches, this can be achieved while also shoring up ongoing development and economic expansion.

“Standard Chartered’s unique footprint covers many of the emerging and high-growth markets that are already at the frontlines of the climate emergency,” says Marisa Drew, Chief Sustainability Officer. “In frontier markets, people are experiencing acute sea level rise, heatwaves and droughts, and urgently need financing for mitigation and adaptation measures. Meanwhile, in high-growth markets there’s an increased demand for energy transition funding to support the transition to low carbon technologies. With comparatively lower access to international capital flows than developed countries, these markets need support to finance growth, create the jobs of the future and protect against economic degradation.”

In response to this issue, Standard Chartered is accelerating the deployment of sustainability-linked finance in the markets it calls home. The bank’s Sustainable Trade Finance proposition and its Sustainable Account are two examples. Both solutions are designed to help companies across its footprint implement more sustainable practices across their ecosystems, directing funds towards the companies and projects that are drawing the future of the sustainable real economy, and enforcing and rewarding sustainable behaviours and practices in the market.

“We’re using our balance sheet to work on behalf of our clients and their decarbonisation goals, while also working to connect them to global best practice around sustainability,” says Drew.

Making a real impact

Investment capital can have a significantly different outcome depending on where and how it is allocated, and the marginal impact of ensuring a just transition is enormous: the average CO2 avoided per dollar of financing is seven times higher in the world’s emerging markets than in developed nations¹. “Sustainable finance will have the greatest impact with clients in emerging and developing markets,” says Drew. “This is why we are focusing on driving a step change in how banks think about where they direct and deploy sustainable finance dollars.”

Sustainable finance will have the greatest impact with clients in emerging and developing markets. This is why we are focusing on driving a step change in how banks think about where they direct and deploy sustainable finance dollars.

Marisa Drew, Chief Sustainability Officer, Standard Chartered

But with a USD 95tn² investment requirement until 2060 to allow emerging markets to meet net-zero targets while continuing to grow and prosper – a sum greater than global GDP – it is clear that banks cannot do this alone. Finding new ways of freeing up capital will mean crowding in investors and leveraging multilateral and development bank support, and here, the banking industry can also play a crucial convening role by facilitating blended finance.

While large projects such as solar and wind installations readily attract financial flows in the west, earlier stage, smaller climate technology solutions that can help monitor and mitigate the impact of climate change need sponsorship, encouragement, and funding. Banks can support these initiatives – many of which are taking place in markets facing political, currency, and instability risks – by making investment more attractive to investors by creating structures that spread the risk or provide credit support s to enhance the profile of a borrower.

“We have executed USD 10bn of blended finance deals in the past four years, mobilising private-sector resources alongside public funding to get the most leveraging impact,” says Drew. “As a bank, we have the financial expertise, governance frameworks, technology, and geographical reach to unlock this capital, and because of our deep expertise in the markets in which we operate, we’re able to form global partnerships that can find new ways of getting financing to where it’s needed.”

Finding pragmatic solutions for real-world problems

“Out of our 59 markets, 33 countries do not yet have a net-zero commitment by 2050, which means that not all of our clients are on the same pathway as they may not be aligned on same timeframe – for example, India has a 2070 target. We can provide the support and advice that clients need to accelerate their net zero journey,” says Drew, “The global perspective on the pathway to a greener future still overlooks the reality of many economies that have further to go, and we have to ensure that these markets have the same opportunities to access capital for resilience and adaptation.”

Here, transition finance must be a key consideration, especially for clients who are in the early stages of their net zero journeys.

“Energy from fossil fuels still plays a critical role in supporting living standards in emerging markets,” says Drew. “Our clients are striving to achieve their net zero targets, and each is at a different stage in their journey. While the need to act is urgent, we must find the right balance to ensure that people in these markets can continue to be able to support their livelihoods.”

As part of its transition finance framework, Standard Chartered works to provide sector-specific guidance on what its clients must do to prepare for a low carbon future, helping to identify the most relevant transition levers and using its unique footprint to transport learnings to and from Asia, Africa and the Middle East – thereby expanding the reach of financing for the transition to those who need it.

The effects of climate change are growing more threatening by the day, creating a significant opportunity for the financial sector to catalyse, standardise and democratise access to sustainable finance. With the right approach, banks can help support a just transition enabling economic development to continue at pace while securing the future of the planet.

¹ https://av.sc.com/corp-en/nr/content/docs/standard-chartered-plc-full-year-2021-presentation.pdf
² https://standardcharteredbank.turtl.co/story/61c337a662714433b924e75d/