17 minute read 1 Dec 2021
Farmers walking holding baby walking in field

How financial services can mobilize capital to deliver net zero

Tom Groom

EY Global Client Service Partner

Corporate finance professional. Enjoys running. Father of three wonderful children.

James Maher

EY Ireland Insurance Sector Leader and EMEIA Sustainable Insurance Leader

Active participant in industry and professional forums. Content creator and thought innovator. Husband and father of two sons. Avid reader. Sports enthusiast, coach and player.

17 minute read 1 Dec 2021

The financial industry can lead on decarbonization by using innovation to bring capital users and providers together.

COP26 is the latest reminder of the scale and urgency of action that’s required to limit climate change to 1.5˚C. The summit may have failed to agree on a binding set of commitments to achieve this goal, but it underlined the need for coordination among all actors and the crucial role of the financial industry in achieving radical decarbonization. The task is immense, and the next 5 to 10 years will be critical. If we are to truly transform the global economy, we need a sea change in capital flows, and in the financial industry that guides them.

Financial services organizations (FSOs) are central to this process. Many are setting increasingly ambitious targets to eliminate their own emissions, achieve net zero “financed emissions,” support the transition of existing clients and fund new climate solutions. 

But FSOs can’t mobilize enough capital on their own. The industry — for all of its capabilities — does not have the scale, the global structures or the democratic legitimacy to take charge. If the sector is to play a leading role in mobilizing enough capital to succeed in the journey to net zero, it needs to radically change how it brings every user and provider of capital together.

This paper takes a sweeping overview of the vast and complex global capital mobilization challenge. It runs the obvious risk of over-simplification, but we hope it can provide a practical, conceptual framework that will help FSOs — whatever their circumstances and choices — play their part in mobilizing capital for net zero.

A father carries his daughter on his shoulders at Trillium Lake
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Chapter 1


Start by understanding and articulating the full range of needs.

The first step toward mobilizing sufficient decarbonization capital is to understand and articulate the full range of current and future capital demand.

FSOs are already dedicating significant resources to meeting the demand for climate transition capital. So far, however, these efforts have typically been limited to project finance or renewables teams, focused on large corporates in carbon-intensive sectors. This represents only a fraction of the underlying demand for transition capital, most of which has not yet been articulated.

The sheer size of this latent and future demand is evident from many credible assessments of global need. These include estimates for annual investment ranging from $3.5t to $5.8t per year (IEA/EY), and total estimates for cumulative required investment of $100t (Carney/UN) and $110t (IRENA). Despite the ambitious goals set out by GFANZ members at COP 26, it’s clear that FSOs cannot fulfill these capital needs from existing financial resources. After all, the current total of global financial assets under professional management has been estimated at $87t (IRENA) and $103t (BCG).

Clearly, partnering with the public sector will be essential. Even so, FSOs are best placed to begin identifying and analyzing the problem. The challenge is to break down the big picture and articulate current and future capital needs in an actionable way. In our view, the first step is to view total capital demand through five categories of purpose, each with its own unique features.

The first two categories of purpose fall under the heading of climate change Adaptation, an area that received belated attention at COP26 and where private and public investors need to work together to fund:

  • Resilience: Meeting the “loss and damage” costs for countries already suffering the physical effects of climate change — an urgent, but little discussed, category of need.
  • Protection: Funding mechanisms that will protect climate defenses, such as forests and oceans — another unfamiliar goal for much of the financial industry.

In contrast, the second two categories of purpose comprise climate change mitigation activities with which many FSOs are increasingly familiar:

  • Innovation: Developing novel climate solutions — the category of purpose that offers the highest potential returns to investors.
  • Transitioning: Implementing decarbonization across the current global economy — the most intuitive category, but also the largest and most complex.

Finally, the fifth purpose underpins all the others:

  • Enabling: Financing the enhancement of change capabilities, inside and outside the financial sector — a relatively small, but often overlooked, category of need.

Within these groupings, FSOs can then break down demand into more detailed subcategories. Understanding the needs and challenges of each will allow FSOs to begin identifying the data, processes and resources needed to fulfill those demands. One approach is to build sets of personas or archetypes that FSOs can use to channel capital to where it’s needed in the real economy. For example, businesses needing capital could be triaged as follows:

  • Green natives: What insights or benchmarks can they offer to other businesses?
  • Already transitioned: How can they continually improve and not misreport?
  • Transitioning company: How can they appraise the progress of a multi-year journey?
  • Transition project: How can they ensure effective management of transition risks?
  • Yet to transition: How can they build confidence around commitments and objectives?
  • Transition deniers: Where will future capital come from as risk premiums change?
  • Stranded company: How can run-off and decommissioning risks best be managed?

As they work to articulate the need for climate transition capital, FSOs also need to keep their eyes on the big picture and push themselves to think laterally.

First, FSOs should look beyond their comfort zone of large, data-intensive businesses. Non-profits, public bodies, small and medium-sized enterprises, households and individual consumers all have unmet needs for transition finance. Each group needs to be broken down into subcategories based on its features.

Second, FSOs need to resist the temptation to concentrate their efforts and resources on the most developed economies and the most mature financial markets, ensuring that all countries receive a fair share of the benefits of investment and innovation.

Third, FSOs must work with other actors to stimulate demand for transition capital. No businesses or FSOs will succeed in meeting their net-zero commitments if the world doesn’t change with them. Public authorities are especially well placed to create grassroots demand for transition capital right across society. FSOs must engage with them to encourage the alignment of all stakeholders.

worker in bottling factory recycling department
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Chapter 2


Work to identify and activate all available capital.

The supply of decarbonization capital is growing rapidly. But, while some areas are well defined, the current supply falls far short of its full potential. For example, green bonds still represent less than 1% of the total capital traded on global bond markets. Many other untapped supplies of green capital have barely been identified, let alone codified.

FSOs are uniquely well placed to combine the process of articulating demand with a parallel effort to understand investor appetites and unlock a full range of decarbonization capital. As a start, FSOs can interrogate the norms and needs of different capital pools. Questions to consider include:

  • Purpose: Do providers want to provoke change, scale up transition or support run-off?
  • Standards: How are relevant standards evolving across the capital stack?
  • Data: What are the disclosure yardsticks? What does “good” look like?
  • Categorization: Should capital be segmented by sector, sub-sector, pathway or risk type?
  • Risk appetite: Where on the risk curve do providers want to position themselves?
  • Risk management: How should physical and transition risks be treated?

Answering these questions will help FSOs and their partners identify the potential roles to be played by different capital types (such as seed capital, private capital, listed equity, listed debt or bilateral credit); different capital vehicles (such as green bonds, sovereign wealth funds or private equity funds); and different end-suppliers of capital (such as governments, insurers, savers, endowments or development banks).

This, in turn, will enable FSOs to begin matching supply with demand. In some cases, bringing the providers and users of capital together will be straightforward. For example, venture capital or private equity funds are natural investors in highly innovative but potentially transformational climate solutions, such as cold fusion or green hydrogen. In other areas, identifying the right supply for a capital need will be far more challenging.

FSOs, therefore, need to think as broadly as possible about stimulating and developing the supply of capital. That includes the use of off-balance-sheet contingent financing and risk transfer through insurance, reinsurance or derivatives.

Understanding and harnessing the potential impact of a full range of actors is also crucial. These are likely to include:

  • Facilitators: Working with the providers of hedging, insurance, guarantees, syndication, legal structuring and investment advice to facilitate capital supplies.
  • Influencers: Engaging with governments, supervisors, regulators, the media, civic groups, industry bodies, activists and the wider public to stimulate the availability of capital.
  • Partners: Collaborating with public- and private-sector actors to develop new forms of funding structures and hybrid capital and unlock a full supply of capital.
Ai Yerweng Skywalk, the longest skywalk in Southeast Asia
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Chapter 3


Recognize and address the limitations of current financial mechanisms.

Clearing demand and supply is the crux of capital mobilization. However, financial markets as we currently know them — including public markets, private markets and bilateral transactions – do not yet have the required intermediation capacity. This is not just about size, although that is a crucial consideration. It is also about impediments. Faced with unfamiliar physical, transitional and reputational risks, there is plenty of evidence to suggest that some established financial mechanisms are not currently working as they will need to in future.

The “Green Premium” is a key indicator that supply and demand are not currently being matched efficiently. Companies can find that green capital is still more costly, or sometimes less viable, to raise than traditional forms of finance, in terms of both arrangement fees and the cost of capital (see graphic below). The fact that it can cost more to raise finance for activities with lower long-term risks is considered to be an indication of market failure.

The green premium chart 1

So how can these impediments be overcome and the mechanisms for capital clearing be improved? First, we can expect competitive dynamics to do some of the work. Drivers of increased market efficiency are likely to include:

  • Growing demand for low-carbon assets, eroding the Green Premium
  • Companies divesting or spinning out “dark green” or “brown” activities
  • Investment in new techniques and technologies that improve transparency and pricing

In addition, the gradual harmonization of climate-related data will help mobilize capital. Perfect alignment of reporting, standards and regulation is not necessary, but a greater standardization and comparability are essential. We expect FSOs, businesses and public bodies to work together to establish a broad consensus based around a handful of key frameworks, such as SBTi, TCFD and PCAF.

Even so, we cannot rely solely on current market mechanisms to mobilize sufficient capital. If the financial industry is to fulfill a key role in global capital mobilization, then capital intermediation needs to be transformed by new techniques, thinking, incentives and partners.

As depicted, the pricing of most financing historically reflected risks in the A category. Today, much standard financing reflects risks in both the A and B categories. For some industries, financing already reflects the A, B and C categories. However, many users of capital still have the option to fund based on A and B risks only. For this group, the additional costs associated with risks in the C category represent a green premium they are unwilling to pay.

As depicted, the pricing of most financing historically reflected risks in the A category. Today, much standard financing reflects risks in both the A and B categories. For some industries, financing already reflects the A, B and C categories. However, many users of capital still have the option to fund based on A and B risks only. For this group, the additional costs associated with risks in the C category represent a green premium they are unwilling to pay.

Womans hand touching surface of water
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Chapter 4


Innovative thinking is crucial to transforming capital mobilization.

Innovation in all of its forms holds the key to removing obstacles to effective clearing, eliminating the Green Premium and facilitating greater mobilization of capital.

Working individually and collectively, FSOs can change financial signals, incentives, behavior and structures. That will depend on understanding and aligning the motivations and habits of relevant stakeholders including governments, companies and consumers. Innovation will of course require investment, especially in technology, talent and training. However, changes in strategy, mindset and attitudes will be equally important. For now, we see four key areas of innovation:

1. Innovative techniques

The most obvious area of innovation for FSOs to focus on is to develop new financial products, services, processes, structures and tools. Individual projects, when scaled up across the industry and over time, can generate a huge impact:

  • Green finance hubs: Creating more, and more capable, green financial centers - stable, trusted hubs providing high quality green finance to every region and market. The UN’s Financial Centers for Sustainability provides a valuable framework for tracking progress.
  • New products and services: Looking beyond large corporate clients to create flexible climate-aligned propositions for retail, SME and other customers, such as green deposits, green mortgages or EV insurance.
  • Transition pathways: Understanding and developing transition plans for key sectors and clients, which means moving from analyzing cash flows and asset values to a deeper understanding of customers’ offerings, strategies, resources and customers.
  • Credible decarbonization plans: Understanding the latest climate science and integrating it into strategic planning and implementation in a clear, measurable way. Learn more about how financial services firms can turn carbon ambition into action.
  • Harnessing insurance: There can be no transition without insurance. Insurers’ risk appetites and underwriting capabilities differ from those of other FSOs, enabling them to de-risk projects and allow for greater capital mobilization in the early stages of transition (e.g., underwriting weather, product liability or intellectual property risks).
  • ·New intermediation mechanisms:  Developing entirely new ways to match the providers and users of capital (e.g., innovative capital mobilization frameworks could be created by using DLT to give retail investors tokenized access to green assets).
  • Trusted disclosure: Producing auditable climate-related reporting that commands stakeholder trust and reduces the costs of capital issuance, underpinned by new assurance techniques for emissions.
  • M&A and other strategic tools: Making greater use of spin-offs and developing “bad bank” structures to fund legacy activities and establish clearing prices.
  • Automating data analysis:  Applying AI and other forms of machine learning to capture and analyze climate-related risks, corporate reporting, and other financial and non-financial data.

2. Innovative relationships

Alignment and collaboration are vital to addressing a global challenge as complex as mobilizing decarbonization capital. FSOs can use a range of innovative approaches to partner with key stakeholders and mobilize capital at a greater scale. Innovative cooperation could involve:

  • Public and private finance providers: Partnering private and public capital can help meet a combination of capital needs including early-stage risk, scale-up, steady state and run-off. In the case of new types of investment such as innovative climate solutions, initial public investment can help open the way for commercial and institutional investors (e.g., the recently agreed green hydrogen partnership between Belgium and Namibia, which aims to use public funding to unlock future private investment).
  • FSOs and public bodies: Engaging with regulators, supervisors and governments could encourage law makers to establish consistent, supportive policy environments that help mobilize capital within countries and across borders.
  • Different types of financial institutions: Greater collaboration between financial institutions that are used to working in industry silos has huge potential to mobilize capital in the same way that previous crises led to the creation of Brady Bonds and Cocos. This includes closer partnering between commercial banks, development banks, asset managers, insurers, sovereign wealth funds and private equity houses (e.g., the joint initiative of the Asian Development Bank, Prudential, HSBC, Citigroup and other FSOs to acquire coal-fired power stations and close them early in their operating lives).
  • FSOs, corporates and tech firms: Working more closely with big tech, manufacturers and service providers can help develop tailored end-to-end solutions such as designing, financing, building and deploying a new fleet of delivery EVs.
  • Groups of capital users and providers: Horizontal grouping could allow small users and providers of capital to build scale, making it easier and cheaper to mobilize capital. Vertical groupings based on locations (such as islands or communities) or themes (such as tidal energy) could have similar benefits for diverse organizations with shared values.
  • FSOs’ internal functions: Breaking down internal barriers between business units, capital allocation silos and cross-cutting disciplines such as technology, sustainability and product development will help unlock each institution’s full potential.

3. Innovative incentives

Mobilizing decarbonization capital depends on radical changes in behavior. Incentives will be key to aligning FSOs and their stakeholders, including clients, consumers, service providers and public bodies, around the same goals. Key categories of incentives include:

  • Fiscal incentives: Tax policy, including positive incentives and disincentivizing levies, is arguably the most effective tool for changing behavior. Governments can use fiscal tools such as surcharges to nudge the behavior of FSOs, investors and issuers. Since the wider public is often the ultimate user and provider of capital, the use of behavioral incentives to shift public opinion may be the most valuable approach in the long term.
  • Regulatory incentives: Facilitative regulation can help align the behavior of issuers, investors and FSOs in ways that mobilize capital. Stress tests, RWA measures and disclosure requirements are examples of the tools that can be used to ensure that climate-related risks are appropriately recognized and priced. In the same spirit, regulators need to avoid taking steps that might unintentionally create barriers to effective capital mobilization.
  • Personal incentives: The rewards, remuneration and recognition of decision-makers in FSOs and other stakeholder organizations can be used to bring about changes in strategic thinking and capital allocation.
  • Economic incentives:  After the financial crisis of 2008, economic views of market efficiency and behavior were revised. Sustainability is now becoming integrated into thinking about growth, value and performance. New economic concepts need to be implemented by FSOs, companies, investors and other market participants.

4. Innovative culture

Innovative techniques, relationships and incentives will bear fruit in the long term only if they are backed up with the right culture and mindset. Some key features for FSOs to emphasize include:

  • Belief: FSOs need to cultivate belief in the importance, value and feasibility of change. That includes the willingness to act fast despite limited data; the desire to push best practice forward; and the flexibility to change tactics as technologies, standards and data evolve.
  • Outcomes: Firms should focus on achieving real-world improvements, not just hitting targets or meeting commitments. That includes ensuring that “just zero” is achieved in a fair and inclusive way that avoids social harm.
  • Consensus: Establishing broad industry agreement over terminology and standards – even if neither is perfectly consistent – will be essential to mobilizing capital in breadth and depth. The mutual acceptability of US GAAP and IFRS, despite differences, illustrates the benefits.
  • Creativity: Firms need to have the intellectual flexibility to challenge assumptions about economic value, or the role and form of financial markets. Current financial frameworks should be viewed as a starting point, rather than a template for the future.
  • Transparency: Honest, clear and full communication is vital to mobilizing capital. Just as conventional financial markets work best when they are most transparent, so too will future, innovative forms of capital intermediation. Sharing information about new techniques, collaborations and ideas will help scale up good ideas and maximize their impact.
where innovation is helping to better mobilize capital and address market failures


The world is at the start of a 50-year transformation in global capital flows. This will require a quantum leap in the ambition, complexity and scale of capital mobilization. COP26 has only heightened awareness that leadership from the financial industry will be crucial to galvanizing momentum among businesses, governments and other critical actors.

Faced with this challenge, it’s all too easy for FSOs to get bogged down in the detail of regulations or targets, and for the whole financial industry to get tied up in the search for common standards. It’s true that the devil is in the detail. But it’s equally vital to keep an eye on the big picture if capital is to be mobilized at the required scale.

We hope this paper can provide FSOs with a simple conceptual framework for thinking about this highly complex problem. In our view, innovation is the vital ingredient for enabling the necessary level of capital mobilization. Innovation can help firms identify demand and supply signals, work with other stakeholders and make the intermediation of capital more efficient and effective.

Improving current market functions is vital, but so too is recognizing their limitations. Conventional capital mechanisms, ranging from stock markets to development finance, simply won’t be enough to solve such a systemic challenge. There is a need for a step change in engagement and collaboration between the private sector and public bodies in areas as diverse as policy, tax, regulation, investment and stewardship.

That is not to say that the financial industry should relinquish responsibility for capital mobilization. FSOs have an opportunity and obligation to demonstrate leadership, both individually and through bodies such as GFANZ, in order to orchestrate capital flows and encourage quick, purposeful action.

We, therefore, hope that our framework will help FSOs think clearly about global capital challenges, allowing individual firms to identify the role they want to play in mobilizing decarbonization capital and formulate the right strategy to achieve it. 

Thank you to EY Ireland Insurance Leader James Maher and EY Global Financial Services Liquidity and Treasury Advisory Leader Peter Marshall for their contributions to this article.


Achieving net zero will require a transformation in how global capital flows are sourced, deployed and intermediated. Innovation holds the key to building consensus and momentum, allowing financial firms to play a leadership role in mobilizing decarbonization capital.

About this article

Tom Groom

EY Global Client Service Partner

Corporate finance professional. Enjoys running. Father of three wonderful children.

James Maher

EY Ireland Insurance Sector Leader and EMEIA Sustainable Insurance Leader

Active participant in industry and professional forums. Content creator and thought innovator. Husband and father of two sons. Avid reader. Sports enthusiast, coach and player.