On Tuesday, October 10, the Institute of International Finance (IIF) published a new report on The Role of The Financial Sector in the Net Zero Transition: Assessing Implications for Policy, Supervision and Market Frameworks.

Recent debate amongst private sector, official sector, and civil society actors has revealed a diverse range of views on the role of the financial sector in supporting the net zero transition, with some stakeholders seeing the financial sector as a primary driver of change. There is limited common understanding of the capacities and limitations of the role of financial institutions in this context, nor is there agreement on the level of direct and indirect influence they can have on real economy decarbonization outcomes. While the financial sector has a critical role to play, its ability to support the transition will depend significantly on whether the conditions are in place to enable the real economy to transition, thereby creating opportunities for finance and investment to support such activities. Over-reliance on the financial sector and its regulators to deliver the net zero transition risks diverting attention from the fundamental policies needed to catalyze actions across the entire economy.

Recognizing these challenges, the IIF and its global members have developed this report to offer perspectives on how financial institutions see their role in transition planning and finance. We highlight industry views on the practicalities of implementing transition strategies in a globally competitive marketplace, with competing sets of stakeholder expectations and a multitude of frameworks. We also set out perspectives on how a financial institution’s contributions towards net zero objectives can be appropriately evaluated, and how risks stemming from misaligned views on ‘what good looks like’ can be addressed.

• Given the critical role of policy frameworks in creating an enabling environment and incentives for transition across all sectors of economy, the report includes some recommendations for governments and policymakers to enable a whole-economy transition.
• Considering the high level of interest in transition planning among supervisors and regulators, the report also provides recommendations on potential supervisory and regulatory approaches to transition planning.
• In addition, recognizing the need for aligned frameworks, guidance, and criteria, the report contains suggestions for market-based and third-sector initiatives on how to advance in a way that supports transparency and enables the development of a shared understanding of transition plan credibility.