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The effects of climate change are being felt more than ever, especially with the record-breaking heatwaves across the world.

Yet, increasingly, trade-offs threaten to stall our progress towards a transition that is fair and just. From reinstating coal power to combat the cost-of-living crisis; to Europe’s dependence on Russian gas to ensure continued household energy supply; to the impact on fossil fuel workers from an energy transition which isn’t yet just.

Compounding this, global commitments on global challenges are at risk. Only 16% of Nationally Determined Contributions to the Paris Agreement are on track and deforestation continues at pace despite commitments made by 100 countries to protect rainforests and indigenous rights. For the first time, progress on the 2030 SDGs has reversed as crises in health, economic growth, climate, biodiversity and geopolitical indicators have hit poor and vulnerable countries the most.

The financial sector and the capital flows it can mobilise are pivotal to tackling global challenges – by holding the power to align financing with social and environmental progress.

We have identified three key drivers of the transformation to create opportunities for finance to maximise positive impact across people, profit and planet:

1. First, net zero has opened a door to making positive social impact. Under the IEA’s Net Zero Emissions scenario, 14 million jobs could be created in energy supply alone, despite the predicted loss of 5 million jobs from fossil fuel decline. Broadening client engagement to support sustainability goals is an effective step to influencing behaviour change and technology adoption in the real economy, whilst at the same time embracing the central role of nature-based solutions.

2. Second, greenwashing is a real and heightened financial risk, following the growing adoption of green financial products. But building credibility is the solution for this: Financial Services must now focus on a ‘show me’, not a ‘tell me’ approach to reporting in order to demonstrate transparency in sustainability outcomes, beyond treating ESG reporting as a box-ticking exercise.

3. And finally, consumers, employees, and stakeholders are increasingly guided by purpose. Identifying ESG purpose serves societal and economic goals not least by attracting and maintaining strong ESG capability. Recent research suggests that improving employees’ connection with the mission or purpose of their organisation results in 5% increase in profitability and 8% lower employee turnover.

What do these three trends mean for financial services? Financial institutions will need to make tough decisions that consider economic, environmental and social impacts to pave a just and fair path to net zero and nature positive outcomes, which are anchored by corporate purpose and purpose-led leadership.

With COP27 just 4 months away it is now more important than ever to ensure that real sustainable action follows words. The geopolitical landscape has changed since COP26, introducing new challenges and underscoring the ambition needed to deliver on the pledges of the public and private sector. Mobilising capital and ensuring this is done in a way that supports positive impact is more critical than ever.

Learn more here: https://www.baringa.com/en/insights-n...