Dear Readers,
Finance is a vital component of growing economies. It flows as one of the main arteries of trade, nourishes entrepreneurship and innovation, and channels breakthrough ideas into growth. It is particularly crucial in times of industrial and technological change like today.
Green finance initiatives play a crucial role in the transition to a low-carbon economy since they help implement policies aimed at decarbonizing national economies. Therefore, it is important to understand under what conditions and to what extent green finance initiatives can contribute to increasing green investments while minimizing their negative impact on economic and financial stability. However, this understanding is currently limited, especially in the context of emerging markets and developing economies. For this understanding to be successful, financial institutions need to gain more knowledge about sub-sector transformation paths. Additionally, for financial institutions to be successful as providers of transition finance, they need to invest in their capacity to analyze sub-sector transformation paths.
COP26 (United Nations Climate Change Conference) was remembered as a session where finance played an important role in combating climate change. The global financial services sector will always play a critical role in achieving net zero carbon targets. The investment required to transform the energy sector alone is estimated to be between USD 3.5 trillion to USD 5.8 trillion per year by 2050. Mark Carney, former Governor of the Bank of England, stated at COP26 that 450 large banks, asset managers, and institutional investors representing USD 130 trillion joined the Glasgow Financial Alliance for Net Zero (GFANZ), committing to align their credit and investment portfolios with the climate goals of the Paris Agreement.
According to the sixth assessment report of the IPCC, urgency is of great importance in combating the effects of climate change. However, the biggest challenge in this fight is whether the temperature increase limit can be kept at 1.5°C, despite international commitments. According to the International Energy Agency's estimates, this goal may not be achievable. Likewise, the latest Emissions Gap report from the United Nations shows that current national commitments and strategies could lead to a 2.7°C temperature increase.
This situation shows that all economic sectors need to invest more in low-carbon assets and businesses to achieve the net zero target. This transition will mean radical changes for many businesses, and they will need financing to make these changes. Insurance companies, credit providers, and investors will play a critical role in providing this capital and supporting the transition process.
On the other hand, climate change not only poses material risks but also presents financial opportunities. Financial institutions that act proactively during the transition can move the global economy and their own financial expectations towards a more sustainable path, creating significant environmental and economic impact.
The European Green Deal's Carbon Border Adjustment Mechanism (CBAM), which recently entered our lives, is one of the important steps taken to achieve success in the transition to a zero-carbon economy, and it also contains many opportunities. This mechanism ensures that exporter companies focus on awareness with the support of financial institutions, accelerating and aligning steps towards sensitive trade for a zero-carbon future.
Achieving the net zero target is both a necessity and an opportunity for financial institutions. Active institutions in this process can make significant contributions to protecting the planet and increasing the long-term value of their investments. To take advantage of this opportunity, institutions must carefully evaluate and implement their transformation plans.
At QNB, we prioritize being by our customers' side in this challenge. With the awareness of our responsibilities, we will act to provide effective role in providing the necessary financing for the transition, creating value for both our environment and our economy, and supporting the path to a sustainable future.
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Burçin Dündar Tüzün
Executive Vice President Corporate & Commercial Credits
