The Role Of Finance On The Path To Net Zero In Europe - a podcast by Florence School of Regulation

Zoë Knight, Managing Director and Group Head of the HSBC Centre of Sustainable Finance, shares her thoughts on the role of the Finance sector in the net-zero transition with Joana Freitas, Ambassador for the FSR Lights on Women initiative. The financial sector’s role in the global response to climate change will entail not only accelerating low carbon investments but also supporting the transition of carbon-intensive sectors. When it comes to investments in green renewable generation, investors’ appetites seem to exceed the volume of investable projects. Knight identifies a variety of reasons, highlighting that the “risk assessment for how strong the investment will contribute to solving climate goals isn't truly reflected yet”. On the other hand, the hard-to-abate sectors, including industry, heavy-duty transport and agriculture, account for around 40% of greenhouse gas emissions but still attract limited investment. In Knight's perspective, companies need to clearly demonstrate what their climate strategy is. In addition, green financial instruments, such as green bonds and sustainability-linked bonds, also have a significant role in the decarbonisation pathway. These types of instruments work as a transparency mechanism allowing investors to be clear on what the proceeds are going to be used for. Although the issuance of green bonds has been growing quickly, in 2020 it only represented 5% of the market. “There’s plenty of work to do from this labelled finance aspect because we need to drive so much capital towards low carbon outcomes”, Knight says. Governments may also signal to investors that they are taking their climate plans seriously by issuing green financial instruments. Knight considers that these initiatives are “a really powerful backdrop for privately-held corporates to be able to also be transparent about their financing as well”.

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