Our sectors: financing and delivering the transition

The climate and energy transition is driving a growing imperative for financial institutions and private capital to make a decisive pivot towards sustainability, but the sector is still building the capabilities needed to judge which assets will thrive – or strand – along that path.

• Exposure dwarfs readiness. More than US $130 trillion is now pledged for net-zero-aligned assets under management through the Glasgow Financial Alliance for Net Zero, but only a small proportion of institutions have integrated climate risk into regular stress-testing frameworks.
• Stranded-asset shadow. A consensus expectation has emerged for significant write-downs for fossil assets over the coming decades as demand peaks and declines, but there has been only limited action to proactively confront this reality.
• Due-diligence crunch. Investors are well used to conducting due diligence, but the way this is done now needs to integrate the transition context, including strategic and commercial viability in the face of the transition, emerging climate risks, and the value of positive impact.

Because the energy system drives the majority of global GHG emissions today, its transition sets the pace for the wider economy – and it must happen at record speed.

• Capacity gap. Meeting the IEA’s Net-Zero Roadmap requires growing installed renewable power to ≈11,000 GW by 2030, while the electrification of fossil-fuel uses will drive big demand shifts.
• Infrastructure lag. New and expanded connections for generation and electrified consumption are fundamentally changing the shape of networks, requiring huge investments in infrastructure.
• Systems operation. The old model of centralised production and one-way networks no longer works: distributed energy resources and bidirectional flows demand new approaches to planning and operating energy systems.
• Policy and price volatility. Shifting subsidies, carbon prices and commodity swings complicate long-term planning and balance-sheet decisions.

Across manufacturing, agriculture, retail, and services, companies face a convergence of emissions exposure, evolving consumer expectations, and intensifying climate risks. Businesses must plan and adapt before regulation, markets or climate volatility impose disruptive change.

• Financial exposure. There is a corporate blind-spot around climate risk, in part owing to the complexity of impact mechanisms, and a resulting strategy gap.
• New opportunities. The transition holds opportunity as well as risk: the challenge is to recognise it in time to secure early-mover advantage and build robust investment cases.
• Regulatory changes. Policy is rapidly shifting to reduce emissions and incentivise transition, and firms must proactively plan for both direct requirements and second-order effects.
• Shifting demand. Global businesses and consumers are changing purchasing behaviours to address climate change, pressuring brands to prove low-carbon and impact-positive credentials.