On March 30, the National Development Council and five ministries released a road map for achieving net-zero carbon emissions by 2050, detailing four major transformations, including energy transformation, and 12 key strategies for achieving the goal.
The issues involved are complicated and intermeshed. Finance, the lifeblood of the real economy, is certain to play an important role. Some international examples might clarify how it might work in practice.
The biggest highlight of the COP26 climate summit in November last year was the establishment of the Glasgow Financial Alliance for Net Zero, with its commitment to building new business models that lend or invest in net-zero assets to achieve climate neutrality by 2050, with a medium-term target for 2030. More than 450 financial institutions — with assets of up to US$130 trillion — have so far signed up to the program.
Alliance members have committed to considering their clients’ emissions targets as their own. Financial institutions are to take their total emissions and emission levels as the inspection standard, meaning that in addition to reducing carbon emissions at their own business offices, they must consider the emissions data of customers and investments. The aim is to drive all of society toward net-zero emissions.
Starting in June, the European Banking Authority (EBA) is to require banks to disclose their “green asset ratio” as a key performance indicator of sustainable finance. The higher their percentage of investments and loans supporting the transformation to green energy, the higher their performance rating.
Specific EBA projects include the manufacturing of equipment using renewable resources, the manufacturing of transportation vehicles using low-carbon processes, the manufacturing of energy-efficient residential equipment and hydrogen production equipment, power generation using renewable resources, energy storage, low-energy buildings, low-energy data centers and the removal of carbon dioxide.
The EBA is also assessing whether banks that lend to companies with high carbon emissions and high energy consumption should calculate the loans using a higher risk weighting, which would increase the cost of such loans.
The EU is encouraging banks to lend to the green energy industry and has begun to call in loans to industries with high carbon emissions — a two-pronged approach.
That is why Bill Gates in November last year said that he and his foundation had divested stocks related to fossil fuels, as those companies would soon lose value.
The theme of this year’s International Earth Day, which falls on Friday next week, is “Invest in Our Planet.” In addition to highlighting the seriousness of environmental issues such as climate change, it is hoped that finance would lead other industries in facilitating energy transition.
Honda Chen is head of the Taiwan Academy of Banking and Finance’s sustainable finance office.
Translated by Lin Lee-kai
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