Private sector needs to boost financing efforts to speed up transition to net zero

A huge amount of funding is needed to scale up breakthrough technologies to mitigate climate change

The world needs a transformation of the global energy system to meet its 2050 net-zero obligations, the CFO of Siemens Energy said. AP

Public-sector financing alone is not enough to tackle the global energy transition and the private sector will have to drive the change if the world is to meet its 2050 climate pledge, the chief financial officer of Siemens Energy has said.

Meeting net-zero targets will rely on breakthrough technology such as energy efficiency solutions, carbon capture and hydrogen-based fuels, Maria Ferraro told the fourth edition of the Abu Dhabi Sustainable Finance Forum on Wednesday.

A huge amount of funding is needed to scale up this technology to a commercial level, and governments need to set up incentive programme for investors to help accelerate its development, she said.

“The climate crisis can’t be solved by public capital alone,” said Ms Ferraro, who is on the executive board of Germany’s clean energy technology company.

“A successful and sustainable transition also requires the mobilisation of private capital, and while the global financial community is rising to this challenge, an investment gap remains due to the supply and demand side finance issues.”

About $50 trillion in incremental investments are required by 2050 to achieve net zero goals and cut greenhouse emission from about 51 billion tonnes per year. Much of the existing emission abatement can happen with existing technology but to accelerate the transition, investment in “breakthrough” technology is needed.

“The transition to net zero is not just about mitigating climate change. It also represents huge economic opportunities for business and investors to fund more sustainable business models,” she said. “This is absolutely necessary.”

Private-sector investments will help “co-create” new technology by taking advantage of some of the public sector incentives and governments’ stimulus packages for instance, she said.

In October, the International Monetary Fund urged the $50tn global investment funds industry to step up efforts to finance the transition to a greener economy and help mitigate the effects of climate change.

Sustainability-focused investments are on the rise, though, amounting to $3.2tn in 2020, which is an increase of more than 80 per cent from 2019, according to the UN Conference on Trade and Development.

Investments by sovereign investors globally into funds and companies following environmental, social and governance standards also surged by more than three times last year as government investment institutions continued to add sustainability-linked assets to their portfolios.

The climate crisis can’t be solved by public capital alone

Maria Ferraro,
chief financial officer, Siemens Energy

Investments by sovereign wealth funds in the ESG space surged to $22.7 billion at the end of last year from $7.2bn reported in 2020, Finbold.com said, citing data from industry tracker Global SWF.

To reach a net-zero target, the world needs a complete transformation of the energy system, as nothing else would “do the trick”.

“The industrial revolution took over 70 years. This next global revolution, the energy transition, has already begun, and frankly, we just don’t have any more decades left to get to net zero,” Ms Ferraro said.

“We must take responsibility as technology leaders, as financial partners, as governments and truly as global citizens.”

Banks and financial institutions have also stepped up their efforts to help clients achieve net-zero goals, Jean Lemierre, chairman, BNP Paribas told the forum.

The French lender is doing it one client at a time by helping them to “move from their current situation” and finance their technology and projects to reach their 2050 goals.

“The change will not come out of the blue,” Mr Lemierre said. “It will come through investing in existing technologies or investing in new ones.”

The energy transition to a net-zero world, however, should include everyone.

“We need to be mindful that nobody should be left aside,” he said, and the process should be “accepted by the people, by companies and by countries”.