Daniel Hanna, Group Head of Sustainable & Transition Finance
16 September 2024
We are standing on the brink of a transformative era for net zero. Advanced economies’ emissions reached their lowest level last year since 19731 and globally energy investment patterns are shifting. Investment in clean energy is now almost double that of fossil fuels; of the $3trn expected to be invested in energy this year, approximately $2trn is set to be deployed into clean energy technologies and infrastructure, including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps2. But this unprecedented attempt to build a next generation energy system that is clean, reliable and affordable, is not straightforward.
The scale of this challenge is underlined by the vast resources and finances it will take to transition. The IEA estimates that it will require nearly $4.5trn of global investment in clean energy a year by the early 2030s to keep us on a 1.5 degree pathway3. But, globally only about 16% of climate finance needs are currently being met4.
International Energy Agency 2023; CO2 Emissions in 2023, License CC BY 4.0
International Energy Agency 2024; World Energy Investment 2024, License CC BY 4.0
There is an urgent need for transition finance, but as a solution it is nascent, with differing expectations of what it can and should do. It requires public and private sector engagement - not only in terms of the types of financial solutions available, whether that’s transition bonds or blended finance solutions, but importantly in creating the right policy environment and economic conditions to de-risk and support the growth and ultimate success of transition finance activity.
The Government has called upon financial institutions, real-economy organisations, professional services providers as well as other stakeholders to help inform the Review’s work on how the UK can leverage and build its existing strengths to create the right ecosystem to scale efforts to decarbonise hard-to-abate sectors.
I’ve had the honour of sitting on the UK’s Transition Finance Market Review’s Expert Group, where I have been able to work with my peers from across the transition finance ecosystem to draw on and share our collective experience and insight. It is clear, there is an urgent need for transition finance to maintain energy security today and support an energy sector that is evolving, whilst simultaneously scaling, at pace, the technologies and ultimately solutions of tomorrow, but there are hurdles to be overcome.
Seven strategic challenges
As part of Barclays’ response to the Transition Finance Market Review’s call for evidence, we identified seven strategic challenges:
Definition
Currently there is no common interpretation or understanding of transition finance.
Role
There are challenges with articulating the role of transition finance with stakeholders.
Regulatory and political environment
There is a lack of clear and consistent political and regulatory support for transition finance, underpinned by real economy measures and incentives, which can align with frameworks across multiple jurisdictions.
Decarbonisation pathways
Clear sectoral decarbonisation pathways are required for the real economy against which transition plans can be appropriately assessed.
Reputational and legal risk
There is a need to address concerns regarding reputational and legal risk arising from potential accusations of perceived greenwashing.
Evolving future transition needs
There is a high degree of uncertainty associated with the forward-looking nature of transition planning.
Inherent tension for financial institutions
There are concerns that pressure on financial institutions to reduce their financed emissions will disincentivise financing for high-emitting sectors or those activities most in need of support to transition.
These challenges are not insurmountable. If appropriately addressed, the UK can lead the charge in this sector, emerging as a global centre of excellence - home to a supportive ecosystem which not only catalyses the mobilisation of transition finance but drives broader domestic and international prosperity, fostering growth in new sectors, and creating the much-needed, high quality jobs of tomorrow.
Learn more about the Transition Finance Market Review Expert Group
About the author
Daniel Hanna is the Group Head of Sustainable & Transition Finance. He is creating a market leading center of excellence for sustainable finance to support clients navigate the opportunities and challenges of transitioning to a low carbon economy and to facilitate $1trn of Sustainable and Transition Financing by end of 2030. Daniel is a member of the Sustainable Impact Capital Program Investment Committee, which is investing £500m in fast-growing, innovative and environmentally-focused early-stage technology companies by 2027. Daniel has worked for over two decades with clients on advisory, financing and capital markets and has helped raise billions of dollars for sustainable infrastructure and social development. He has worked on many sustainable finance ‘firsts’ including the first sovereign blue bond, first climate transition bond for an Airline, the first sustainable finance framework for a sovereign wealth fund and the first private equity subscription line with an embedded carbon offset ratchet.
Footnotes:
- https://www.iea.org/reports/co2-emissions-in-2023/emissions-in-advanced-economies-fell-to-their-level-of-50-years-ago
- https://www.iea.org/reports/world-energy-investment-2024
- https://www.iea.org/reports/net-zero-roadmap-a-global-pathway-to-keep-the-15-0c-goal-in-reach
- https://www.rockefellerfoundation.org/news/new-rockefeller-foundation-and-bcg-research-reveals-size-of-gap-in-climate-finance/
- https://www.theglobalcity.uk/tfmr