Net-zero scenario analysis

Global financial institutions played a key role at COP 26, highlighting the need to go much further in scaling up investments in climate action and to align financing activities with 1.5°C and net-zero targets. The Glasgow Financial Alliance for Net Zero (GFANZ) was front and centre in the talks and brings together the different parts of the financial system for the common goal of addressing climate. Analysis around climate scenarios are necessary for both risk management and alignment of capital to emissions outcomes, with the construction of such scenarios a fast moving landscape.

The Central Banks and Supervisors Network for Greening the Financial Systems (NGFS) released the Glasgow Declaration. Amongst other commitments, this includes a pledge to enhance and enrich climate scenarios and to increase the work to bridge data gaps that are currently faced by financial institutions to manage climate associated risks. It is clear that the urgency and momentum around COP26 has accelerated the finance sector transition towards net-zero.

Guidehouse and WWF in collaboration with HSBC have published this report, which looks to address a critical component of transition planning by analysing 1.5⁰C aligned decarbonisation pathways for key sectors. The key sectors include primary energy, power, cement, steel, shipping, automotive and agriculture, forestry, and other land use. This paper aims to help financial institutions better understand the opportunities and challenges for key sectors and develop the climate transition strategies required to build a net zero global economy.

The study outlines the critical need for business to align to net-zero, a comparison of current emission scenarios, sectoral pathways and its implications. It also demonstrates the technical steps towards net-zero and the role of climate scenario analysis for setting science-based targets and climate strategy development. It is found that with science-based and internationally recognised guidance, scenario planning and data, it is possible for the finance sector to align their portfolios to a 1.5⁰C pathway, and support their customers in their own transition journeys.