1 minute read
The role of finance and the transition to net zero
2. Transition for financial services
This chapter provides an overview of what net zero means for the financial services industry, including definitions around sustainable finance products and associated regulation. This provides some context and initial identification of opportunities for Guernsey, to explore in more detail in section 3.
2.1 the role of finance and the transition to net zero
In the momentum surrounding COP26 in November 2021, financial services firms responsible for over $130 trillion in AUM rallied to join the Race to Zero. Under the GFANZ (Glasgow Financial Alliance for Net Zero) umbrella spearheaded by Mark Carney, asset owners, asset managers, insurers and banks came together and committed to aligning their financial flows to the net zero goal. This is widely viewed as one of COP26’s big wins, and a watershed moment where global private finance stepped up to the net zero challenge.
Net zero means reducing global greenhouse gas emissions to the point at which emissions we produce are equivalent to the emissions we sequester or remove globally. This requires a fundamental redesign of the energy system, alongside changes to almost every sector consuming it globally. Total estimated investment to reach net zero ranges from anywhere between $125 to $350 trillion by 2050.8 This being a broad range, there is still some uncertainty around the estimates, particularly in technology costs over the longer term. Even so, what’s clear is that the investment needed is substantial and will touch almost every sector and region globally.
Within this, there is a role for each player in the financial ecosystem to help drive this change. This will require it to act more as an integrated system, developing new models and new ways of thinking to do so. As a leading international finance centre and green finance hub, Guernsey can play a role disproportionate to its size in supporting the transition. Before we get to that, there are some key terms to define, and some challenges to overcome. Further, while these sums cover the investments in key technologies required to get to net zero, they don’t include the broader social and environmental requirements to meet net zero sustainably.9
8 See footnote 3
