The chair of the Network for Greening the Financial System has called for the development of international guidance and a framework for transition plans, and said capital financing the transition will follow the signals markets send.

A lack of data and frameworks by governments emerged as the biggest challenge to private sector transition planning, Sabine Mauderer, who is also a member of the executive board of Deutsche Bundesbank, said. She added that in creating a transition plan framework it is important to take a holistic approach while “not overburdening companies and institutions, especially SMEs”.

Transition plans are an important prerequisite for the positioning of private capital, she told an audience at the City of London Corporation’s Net Zero Delivery Summit on Tuesday, noting a discrepancy between how attractive investors find climate-related investments and the huge financing gap estimated at about $7tn a year, with oil still seen as attractive by investors.  

While climate risk needs to be mitigated, the business case for financing this needs to be enhanced, she argued, to convince investors that allocating will increase returns or decrease risk.  

“Climate policy could give necessary price signals to market players,” she said.  

Without timely and appropriate climate action, physical risk from extreme weather events could lead to a global output loss of about $15tn by 2050, close to the size of euro area economy, she added.  

“While global warming continues, the number of droughts, floods, hurricanes and wildfires will increase significantly. At some point we’ll see tougher climate policies that will affect biz models of many industries, maybe also their profitability,” Mauderer warned. 

The NGFS is currently preparing scenario analyses that consider the next three to five years, she remarked, having previously focussed on long-term scenarios.  

“Our NGFS scenarios illustrate the scale of climate risk to the economy and to the financial sector. This information is relevant to us as central banks, as supervisors, but it can also provide a valuable signal to wider financial markets,” she said. 

The UK's Transition Plan Taskforce published its final set of transition plan resources in April this year.
   

   

A video recording of the Net Zero Delivery Summit 2024 can be viewed here:
 

What would be a market signal that would help drive capital towards the green transition?