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How can sustainable finance transform 2050 pledges into real-world impact?

Financial institutions (FIs) need a framework that allows them to anticipate seismic economic transformation and adapt their strategy accordingly.

In brief

  • Understanding and anticipating the transition pathways of key industries is crucial to imagining how the global economy will look 10, 20 or 30 years from now.
  • A framework based on the proximity and clarity of different sectors’ transition plans will allow FIs to respond to, and enable, a generational shift.
  • Firms can then identify the capabilities and structures needed to provide investment, finance and insurance in 2030, 2040 and 2050.

Our collective understanding of how the world needs to decarbonize has improved significantly in recent years. That is enabling all of us – acting as investors, customers, employees and citizens – to ask better questions about the decarbonization plans of the public and private institutions we interact with.

However, the answers we receive are hard to appraise critically. The magnitude and complexity of the required transformation, stretching over decades and relying on new and unproven technologies, is hard to visualize. Even sector experts can struggle to predict industry pathways (such as the prospects for hydrogen aircraft), or the drivers of success or failure (such as the best battery technology for electric vehicles).

Uncertainties over the outlook for sectors, sub-sectors and individual organizations are further aggregated for financial institutions (FIs). Financial firms’ investors, leaders and staff want to understand how their organizations can create value in the future, for business, society and the planet. But the way FIs’ activities cut across every sector of the real economy creates a multilayered decarbonization picture full of contradictions and interdependencies.

As a result, appraising decarbonization plans is fraught with challenges for banks, insurers, asset managers and private equity firms.

Fortunately, FIs are not powerless to predict how key industries will change – or to begin planning how they themselves are likely to be transformed. Working with industry experts and a range of real economy players, we have sought to develop a methodology to help FIs cut through the noise and clarify their decarbonization pathways. This has allowed us to imagine a potential future for financial firms as they and the real economy decarbonize:

Transition in financial services: emissions over time

finance analyze to imagine diagram

Climate risk management is genuinely embedded at most FIs, and mandatory transition plans are used by the industry to appraise risk with increasing sophistication.

As conflicts between topics such as decarbonization and energy security have played out, the “supporting all through transition” strategy starts to become more nuanced, with investors, finance providers and risk carriers starting to screen out players and sub-sectors beyond the immediately obvious (e.g. fossil fuels).

First waves of greenwashing redress commence.

Easier-to-abate industries complete decarbonization transitions, and with it, have access to the broadest pools of liquidity.

Technologies currently going through R&D processes emerge, are considered safe, and first-time financing commences (e.g. hydrogen aeroplanes, ammonia ships, etc.).

Those who have deployed active balance sheet management since 2025 (using all four areas of the quadrant actively) start to demonstrably trade a premium valuation.

Industry investing in non-core loans, investments and real assets (that don’t meet decarbonization requirements of mainstream FIs) reaches peak liquidity.

Removal of liquidity (at any price) for those clearly behind the generally accepted transition pathway and for legacy assets.

Valuation differences for those with different approaches to decarbonization start to close (except for those operating at the extremes).

Wind-down financing and insurance for legacy assets starts to get mothballed (e.g. financing of planes and ships built in 2022).

Decarbonization is complete, and carbon topics cease to become part of balance sheet management, rather a threshold requirement at origination.

The future of financial services we have imagined, based largely on the Paris Agreement adopted in late 2015, assumes that:

  • While the challenge is significant, in theory the world and businesses will have reached net zero by 2050. Therefore FIs at that stage will no longer be thinking about how to help facilitate transitions. Creating further financed emissions will simply be outside the risk appetite of the vast majority of firms.
  • By 2040 many industries will have transitioned, but hard-to-abate sectors will still be working intensively to complete the effort. By that point we predict that an industry specialized in acquiring and safely running down financed emissions will have emerged. The decarbonization challenge will be well understood and in the hands of a few, rather than the hands of the many.
  • By 2030 genuine embedding of climate responses will have been achieved throughout the life cycle of all financial products – translating corporate level objectives into real actions by every business, product, service and desk. This is of course already well advanced in some areas. However, not all actors will get this right first time. As a result we anticipate a period of greenwashing led remediation to peak around 2030.

These predictions may or may not be accurate, and their timing is clearly open to debate – there are many reasons why some effects could accelerate. Importantly though, all potential futures show that FIs’ success or failure will be determined by their ability to understand, enable and respond to industry transformation. We have therefore developed a structured framework that provides tangible, dynamic insights into sectors’ decarbonization pathways – allowing FIs to engage constructively with the real economy long into the future.

Boy opening recycling bin in garden

Chapter 1

What needs to change — and how finance can anticipate and enable it

A return to first principles is key to preparing for the complexities of the future.

Our framework is not intended to replace financial firms’ existing strategic modelling tools for investment, credit or underwriting. Instead, its goal is to help FIs and their corporate clients understand and engage with the high-level climate transition pathways of key economic sectors, and begin transforming themselves in response.

To do this, the framework goes back to first principles. It examines the drivers of the proximity and clarity of different sectors’ transitions. It develops transition archetypes, recommending a sustainable finance lens through which FIs can view the future needs of each industry. And it charts potential futures, to illustrate how sectors and their financial needs may develop over time — and how FIs themselves will need to evolve as a result.

FIs can use this concept to cut through short-term noise and understand the evolving transition pathways of any sector or sub-sector. This will allow them to begin transforming themselves for the future, by developing sustainable finance strategies that:

  • Move beyond simplistic binary decisions between “divest or engage”
  • Use insight and collaboration to help high-carbon businesses transition, while scaling up climate solutions
  • Mitigate the second- and third-order economic and social effects of decarbonization
  • Discharge FIs’ fiduciary duties by meeting the needs of customers, investors and the environment

FIs seeking to apply the framework need to follow four key stages. These build on each other to construct a well-argued vision for decarbonization pathways, providing the basis for visualizing how individual FIs and the financial industry as a whole will be transformed during the decades leading up to 2050.

finance analyze to imagine diagram

Stage one: Analyze

Analyze the proximity of each sector’s transition.

Proximity is a combination of urgency and capability, which are shaped by four key groups:

  1. People: Individually and collectively, we all exercise a significant influence on the speed and urgency of each industry’s transition. Grassroots climate activism is proving powerful, and spiraling costs are fueling greater energy awareness. Whether they’re consumers, employees, activists or investors, people are demanding faster climate action, and public scrutiny is likely to increase over time. However, there are also major sensitivities over the costs of decarbonization. Public opinion in the social media age not only varies significantly between different regions and markets, but can change rapidly and unpredictably.
  2. Governments: Whether responding to public opinion or shaping it, governments and other public bodies have critical roles to play in influencing the pace of transition. This includes addressing legacy problems such as market failures or the stranding of assets; facilitating the future by enabling new technologies and techniques through co-investment, subsidies, fiscal incentives or regulation; and ensuring that social risks are addressed. However, national variations on key issues like nuclear power and the potential for politicization and polarization could also become major obstacles to a global transition.
  3. Technology providers: The availability of technology is often the biggest influencer of proximity. Simply put, the technologies required to decarbonize many industries are not yet available. In the long term, however, technology has the greatest game-changing potential — whether by scaling up capture and sequestration, or by entirely reimagining industry norms.
  4. Industry bodies: Trade bodies, professional bodies, single-issue groups and other collaborative initiatives can have significant influence on the speed of transitions – for example, by coordinating change, organizing investment, or agreeing on shared standards.

Needless to say, the reality is more complex: decarbonization is everybody’s business. Each group influences the others, creating blockages and feedback loops. Collective action can cancel out individual choices. Citizens can exert influence over companies and governments, but those institutions also have significant power to frame and reframe the debate. Looking ahead, innovations in the metaverse, 3D printing and bioscience are likely to have a profound impact on the nature of consumption.



Stage two: Understand


Understand how ongoing initiatives and activities in the real economy are influencing the clarity of each industry’s transition pathways.

Looking across all sectors, we typically observe four potential phases of decarbonization:

  1. Changing the use of existing assets, resources and approaches – for example, by reducing usage intensity or shortening supply chains.
  2. Retrofitting existing assets and resources with mitigating technologies that improve energy efficiency – for example, by converting buildings primary energy source to solar power.
  3. Developing new technologies that entirely alter assets or ways of working – for example, through carbon capture and storage, or by harnessing new sustainable forms of propulsion.
  4. Offsetting residual emissions or pollution that cannot be eliminated by stages one through three.

In many cases, industry bodies have an important role to play in articulating the stages of decarbonization and setting common transition standards or timelines. Not every industry will need to follow all four phases, or to follow them in order. It may be appropriate to use offsetting alongside the other phases, to accelerate decarbonization while implementing changes of use, retrofitting and new technologies. However, firms must not use over-reliance on offsets to avoid permanent decarbonization, and should always ensure that offsets are of sufficient quality.

    Stage three: Assess

    Use insights into the proximity and clarity of the transition to appraise the risks and opportunities facing different industries, and help those industries maintain affordable access to funding and insurance during their transition journey.

    As part of this process, FIs can map sectors and subsectors into one of four sustainable finance archetypes. Each archetype indicates a specific set of financial challenges and needs, with corresponding implications for FIs’ sustainable finance activities and, ultimately, for their own structures and behaviors.

    Mapping decarbonization transitions by sector


    Maintain and grow

    Opportunity to invest in, finance or de-risk their transition now. In some industries, major risks remain to be managed, e.g. legacy supply chains.

    Risk manage and reimagine

    This quadrant will become more challenging over time – e.g. it contains coal today, but will contain transition laggards across all industries in the future.

    Long-term innovation partner

    Will require financing and risk management in time, and may require FS to innovate to finance and risk manage new technologies with little track record.

    Stay close and support

    Over time this will move up – and may also move left. Need to stay close to industry and its developments, and then innovate, manage risk, reimagine or exit accordingly.

    Individual sectors’ positions in each quadrant may change over time as their transition pathways grow nearer or clearer. Some industries’ transition pathways are already relatively clear and are evolving rapidly. In contrast, other sectors and sub-sectors have barely begun to model their transitions, let alone implement change.

    The four archetypes and some of their typical risks and opportunities are:

    • Maintain and grow: The sector’s transition is near, clear and already underway. FIs have an imminent opportunity to finance, invest in or de-risk ongoing transition activities.
    • Risk manage and reimagine: The transition is urgent, but challenging or complex. FIs should engage closely with the sector, encouraging laggards and managing risks while financing more advanced players or initiatives.
    • Partner in innovation: Transition pathways are relatively clear but will take time to implement. FIs should begin delivering the long-term finance, investment and risk management the industry needs to establish a robust transition pathway. This is likely to require scaled-up or entirely new financial solutions.
    • Stay close and support: The transition journey remains unclear and will take time to emerge. FIs should maintain a watching brief as clarity gradually improves, monitoring industry developments and preparing innovative solutions that can be applied when opportunities to finance, risk manage or divest arise.

    Stage four: Imagine

    Imagine detailed potential futures for every sector.

    Potential futures help FIs to identify and anticipate likely obstacles and milestones in each sector’s transition pathway, and their probable impact on emissions.

    They also help FIs to overlay industry journeys with the developments in sustainable finance that will be required at key points in each sector’s transition. This enables investors, credit providers and risk carriers to:

    • React to change — by protecting assets and minimizing liabilities
    • Enable change — by financing new technologies and assets
    • Enact change — by transforming their own structures and processes

    At the highest level, mapping transition pathways will give FIs a good overview of how industries may “drift” between archetypes over time. Charting the potential evolution of an industry provides a stylized way for FIs to visualize the future of key sectors. FIs can then combine multiple client journeys, helping to formulate an enterprise-wide, cross-sector strategy and transition plan.

    At the strategic level, a detailed understanding of future obstacles will help FIs match anticipated needs with solutions, as well as identify likely funding requirements, durations, timelines and partnering requirements. This includes deciding the potential roles of debt and equity, public and private finance, and primary or secondary markets in future solutions.

    At the operational level, banks, insurers and investment managers can begin to drill down, identifying detailed developments that will be required in lending, investment, underwriting and advisory solutions. This will lead to the creation of short and medium-term action plans FIs can begin implementing immediately as part of their overall transition plan. A viable plan might include steps such as:

    • Enhancing understanding of specific climate solutions and emerging technologies
    • Training and educating relationship managers, risk managers and key decision-makers
    • Building new targeted datasets focusing on key industries or technologies
    • Developing multi-asset decarbonization investment strategies
    • Harnessing public money and guarantees, using blended finance to mobilize risk appetite
    • Facilitating data sharing and aligning data standards across industry supply chains
    • Changing covenants in light of emerging trends
    • Sharing estimated residual values of green assets with peers
    • Supporting client calculations of Scope 1 (direct emissions) and Scope 2 (emissions arising from energy use)
    • Planning how to finance the decommissioning of carbon-intensive assets

    FIs will know they have applied the framework successfully when they can visualize the evolution of different sectors and their financial needs over a period of decades; identify tangible actions they can take now to tailor their products and services to those needs; and begin altering their own organization to deliver those altered offerings.

    Brazilian tourism at Porto de Galinhas beach in Pernambuco

    Chapter 2

    A deeper dive sheds light on the trajectory of four diverse industries

    Analysis, risk appraisal and scenario planning will allow financial firms to meet the needs of future decades.

    To illustrate the potential of this approach, we’ve applied the framework to four industries that are currently high emitters of greenhouse gases, one from each archetype. They are: Automotive (1), Agriculture (2), Energy (3) and Aviation (4).

    A deeper dive into representative sectors

    Looking to the future

    Vast amounts of finance must be mobilized if the world is to achieve a successful transition to a more sustainable future. The ways in which different industries undergo this journey will depend on evolving social, technological, economic and political factors. A deep understanding of these pathways is vital if FIs are to enable the transition over the coming decades, and transform themselves and their activities in the process.

    Future winners in sustainable finance will be those FIs that can anticipate the transition trajectories of key industries and adapt their sector strategies accordingly, dynamically managing their portfolios in line with their chosen risk appetites. Just as FIs succeeded in the past by being sector specialists, they will succeed in the future by becoming transition specialists able to support clients on their unique journeys to sustainability.

    Early communication with stakeholders, setting out multi-sector views and their implications for lending, investment and underwriting, will be crucial to success. Leading firms will then actively manage their balance sheet exposures based on the decarbonization archetypes and future trajectories of their client base.

    A structured framework that provides detailed, dynamic insights into the proximity and clarity of sectors’ transition pathways will allow FIs to engage constructively with the real economy, protecting value by minimizing risk and creating value by maximizing return while achieving tangible emissions reductions.

    The framework can be applied to any sector or sub-sector, not just high-emitting industries. It can also be used to identify the transition pathways of large organizations’ key divisions or subsidiaries. Although designed to focus on decarbonization, it could potentially be adapted to address other environmental risks.

    This value-led approach can help FIs to balance the need for decarbonization with the imperatives of resilience and profitability during the next 20 to 30 years. It can also allow them to adapt their thinking in response to as-yet unknown advances in technology. As the decades pass, the way FIs look and operate is poised to change significantly. In our view:

    • By 2025, FIs will need to have a clear long-term view of, and approach towards, each archetype and sector.
    • By 2030, future winners in sustainable finance will have already made material adaptations to their offerings, capabilities and structures.
    • By 2040, industries in the “Maintain and grow” and “Risk manage and reimagine” quadrants will be largely decarbonized. Sustainable finance winners and losers will be clearly identified.
    • By 2050, the transition archetypes will be obsolete. The global economy will have been transformed. There will be no sustainable finance — just a financial industry that looks very different from today’s.

    FIs need to start imagining the future now and developing their transition plans. Understanding the likely transition pathways of key industries is crucial to visualizing and delivering the sustainable insurance, investment and lending that will be needed over the decades ahead.


    The long-term winners in sustainable finance will be those that understand transition pathways early, create decarbonization strategies and transform themselves in order to meet the financial needs of the future.

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