The transition to low carbon is starting to pick up pace, particularly in industries where emissions are high and hard to abate. For example, electrical vehicle (EV) sales bucked the overall auto sector decline in 2020. By September, EV sales in the EU had increased by 81 per cent year-to-date, and more than 350 EV models are due for launch across the world next year.
Important work is ongoing in other sectors. In October 2020 the European Commission announced plans to renovate 35 million energy-inefficient buildings by 2030. Buildings account for 40 per cent of energy consumed and 36 per cent of energy-related greenhouse gas emissions in Europe. There is increasing awareness of the need to build new, sustainable infrastructure in the fast-growing Asian economies.
Developing better investment solutions for sectors that are making progress in emissions reduction, but cannot yet qualify for pure green finance, is an important task for the financial sector. This will be an important step in the transition process for heavy-emitting sectors such as steel production and aviation. As new transition products come to the fore, financial institutions and their clients should work together closely to find the right solutions for each client transition journey. HSBC has worked with other market participants to develop new Green and Social Bond Principles that will help guide the growth of the market.
3. Increasing climate-finance returns
Investors have a growing appetite for sustainable finance. This is driven partly by greater pressure from stakeholders, but primarily by expectations of higher returns. In an extremely bumpy year for equities, ‘climate stocks’ (eg renewable energy, energy storage, agriculture and transport efficiencies) made a 37 per cent gain, against 11 per cent for the overall market.
The green and sustainable bonds market also proved its durability in 2020. Despite a dip over the first half of the year, in Q3 green bond issuance alone reached USD64.9 billion – the highest volume in any third quarter period since the market’s inception. Total historical green bond issuance is now almost USD1 trillion.