From Dubai to Davos: Activating a New Era in Transition Finance

Written by Gwil Mason (Financial System Engagement Lead, WBA) and Martina Tessari (Head of Europe at A4S)

To many, COP28 signalled the beginning of the end for fossil fuels.

For the first time, countries committed to ‘transition away’ from fossil fuels, towards cleaner energy sources and fairer and more sustainable economies.

This theme of ‘transition’ was also reflected in vital initiatives emerging from COP: the Presidency’s Net-Zero Transition Charter, the launch of the Industrial Transition Accelerator, the ILO and UNEPFI’s Just Transition Finance – Pathways for banking and insurance, and GFANZ’s latest progress report on transition finance.

To ensure that the commitments made at COP28 translate into real and tangible action, A4S and WBA joined forces at the World Economic Forum in Davos to bring together leaders from finance, business and regulators to explore how organisations are responding to transition-related challenges, how they are translating high-level strategy and targets into tangible action, and what they need from others to enable change.

The session built on the important work that A4S and WBA have already each carried out on working with key stakeholders, identifying the barriers and key actions needed to drive the transition. For example, WBA’s Financial System Benchmark assesses financial institution’s financing of climate solutions.

Session participants called for urgent action to accelerate the transition in the following key areas:

1. Incentives – Meaningful incentives must be put in place so that transition finance can flourish. The creation of a more robust market with appropriate guidance and guardrails will help incentivise opportunities, solutions and capital flows. However, Governments should also consider the other tools at their disposal, for example the necessity of developing national transition plans which businesses and investors can align to.
2. Public engagement – Real economy companies, financial institutions and civil society must increase their proactive engagement with policymakers, to ensure policy and regulatory frameworks are supportive and transition-ready.
3. Upskilling, training and academia – Skilled staff are needed at both real economy companies and financial institutions, to ensure they can effectively transition. They must understand key sustainability concepts, the needs of their business, and the expectations of wider stakeholders. Better training, including from business schools, is needed to increase the talent pipeline.
4. Time horizons – While a long-term perspective is important, targets with excessively long time horizons can lead to a lack of immediate action and do not keep investors engaged. Instead, companies and financial institutions should translate their long-term ambitions into credible short-term targets and work towards them.
5. Cross-functional working – Transition is a business-critical issue that cannot be solved by a ‘Sustainability team’ isolated from the rest of the organization. Transition must be integrated within, and considered by, all business units as part of the business strategy, model and operations.
6. Credible reporting – Actors need to support the standardisation and consistent adoption of reporting standards to create common language and understanding between climate projects, businesses and financial services.

A4S and WBA will both be carrying out further work in 2024, to progress these actions. A4S will continue to upskill finance professionals through their CFO, Pension Chair and Accounting Bodies networks and through their A4S Academy, which is now open for applications. WBA will incorporate these considerations into a Collective Impact Coalition bringing together financial institutions and civil society to drive positive change.