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Financing the Green Transition

Changing the energy-financing models of banks, or developing sustainability-linked loans and green bonds, will simply not be enough to facilitate the transition to a more sustainable economy. A new approach that is effective and scalable must take investors’ expectations fully into account.

PARIS – Four years after world leaders signed the Paris climate agreement and adopted the United Nations’ 2030 Agenda with its 17 Sustainable Development Goals (SDGs), the global environmental crisis shows every sign of worsening. Polar ice and glaciers are melting at an accelerating rate. Greenhouse-gas emissions are increasing. The Amazon and Indonesian rainforests are burning, and climate catastrophes such as typhoons, tornadoes, and floods are intensifying, with dire consequences for entire populations.

Why has the world strayed so far from its collective roadmap toward sustainable growth? Over the past decade, climate action has mainly involved praising businesses and governments that adopt “green” practices while naming and shaming those that maintain “brown” policies. But this is not enough. We must fundamentally rethink how to create a more sustainable world.

The financial sector will need to play a leading role in scaling up green initiatives, de-risking projects for investors, and optimizing funding costs. And, given the integrated nature of sustainable growth, financial institutions must work more closely with national and local governments, regulators, businesses, NGOs, and citizens.

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