Mobilising institutional capital to deliver a Net Zero world where no-one is left behind.
Reducing and absorbing carbon emissions at the speed and scale needed to safeguard our planet requires vast amounts of capital. The global costs required to achieve ‘Net Zero’ carbon emissions have been variously put at $1.6 trillion  to $4 trillion a year . Governments and the public sector alone cannot meet these huge capital requirements. More of the $154 trillion  held globally in private pensions, insurance policies, endowments and other institutional arrangements urgently needs to be deployed in investments that can help drive a global transition to Net Zero.
At the same time a global consensus is emerging that to be sustained and successful, this transition needs to be socially inclusive. Capital will need to be invested in ways that support a Just Transition towards a Net Zero world that is fair and beneficial for all – including the delivery of the United Nations’ Sustainable Development Goals (SDGs).
Aren’t lots of private investments already seeking to have a positive impact?
The resources available within financial markets to address the climate and social challenges that the world faces are immense. Investment that takes environmental, social and governance (ESG) factors into account has been expanding over the past decade to embrace ‘responsible’, ‘sustainable’ and ‘impact’ investing. Yet the bulk of private capital still sits on the sidelines of the most pressing issues of our day.
All actors – detailed below – need to work together to effect systemic change to expand and accelerate the flow of capital urgently to where it is most needed.
Does it make sound investment sense?
Deploying capital to address the SDGs and deliver a Just Transition is not only a social and moral imperative. It also makes strong investment and economic sense, as illustrated by examples from across the globe:
At a global level, analysis suggests that bold action on climate change could yield a direct economic gain of $26 trillion through to 2030 compared with business-as-usual 
In the UK, the Climate Change Committee estimates that majoroperating cost savings would more than offset the multi-billion pound capital costs of Net Zero investments up to 2035 – and that the level of UK GDP could be around 2% higher as resources are redirected from fossil fuel imports to UK 
In South Africa, investments built around renewable energy, sustainable transport solutions and nature-based rehabilitation have been projected to deliver 250% more jobs and 420% more value added in the economy compared to traditional fossil fuel investments.
Just as important, capital that ignores environmental and social challenges will be increasingly vulnerable to performance as well as reputational risk.
What is needed to mobilise more capital for the SDGs and a Just Transition today?
As part of the UK’s presidency of the G7 in 2021, the Impact Taskforce was mandated to develop actionable pathways for mobilising greater amounts of capital to invest in solutions to help meet the long-term needs of people and the planet .
The Impact Taskforce’s report, ‘Mobilising institutional capital towards the SDGs and a Just Transition’, presents these pathways. The report was produced by the Impact Taskforce’s workstream on instruments and policies for financing the SDGs and a Just Transition. It is based on engagement with 170 influential stakeholders representing over 110 organisations based in almost 40 countries.
The Taskforce’s investment, policy and thought leaders issue the following priority areas for action:
All actors involved in financial markets need to move forward together swiftly in order to unlock and deploy capital at the scale and pace required to address the world’s most pressing environmental and social challenges.
This includes G7 and national policymakers and regulators, development banks and development finance institutions, institutional asset owners, asset managers, impact investors, advisors and ecosystem builders. All need to acknowledge that decisive and co-ordinated change, not waiting for others to act, is essential to generate the momentum that can transform the future.
Consideration of all the socio-economic impacts of the transition to a Net Zero world is critical to both building support for action and shaping a world that is sustainable and just for all.
The Impact Taskforce put forward three Just Transition Elements that make clear what ‘good’ looks like and allow the global community to speak the same language when pursuing a Just Transition. These three Just Transition Elements – Climate and Environmental Action; Socio-Economic Distribution and Equity; and Community Voice – can be integrated into investment decisions and investment vehicles, both existing and those yet to be designed.
The need to invest in a Just Transition and the SDGs applies to all markets and asset classes. However, the Impact Taskforce report identifies key levers that are particularly important towards achieving a global Just Transition. These therefore should be the focus of current and future Just Transition investments:
Principal areas of investment focus for a Just Transition
Emerging markets present the biggest gap in funding the SDGs and a Just Transition – but also some of the biggest opportunities. As well as encouraging international investors to allocate more capital, local institutional capital providers also need to be strengthened in order to build sustainable local financing routes and ecosystems.
Private assets give investors a powerful means to achieve their social and environmental objectives, because of the greater influence and control they involve – especially in emerging markets. Private equity, private debt, infrastructure and real estate are all familiar to investors and offer market-ready opportunities to mobilise more capital.
Public fixed income
Fixed income meets the high investor demand for familiar products that can deliver an attractive, reliable yield and good liquidity. There is also great potential for emerging market bonds aligned with the SDGs and Just Transition objectives, as the rapid growth in green, sustainability-linked and other thematic bonds has shown.
Indirect investment vehicles such as pooled investment funds offer the most practical – and familiar – means to mobilise capital among institutional investors at scale. By aggregating assets, pooled vehicles diversify risk and enable inclusion of smaller, more dispersed investments – which is especially important for emerging markets.
To provide a tangible starting point for developing (or adapting) suitable ‘Just Transition’ investment vehicles, the Investment Taskforce report puts forward a Just Transition Blueprint. This provides a robust framework to shape a vehicle and monitor it throughout its lifecycle. The Blueprint can be applied to existing and new vehicles investing in any asset class. The Blueprint and its principles can be found in the report – and are summarised below:
Institutional investors may cite a range of barriers or concerns to investing towards a Just Transition – especially where the focus is on emerging markets. Such barriers include real and perceived macro risks, lack of investment size, lack of liquidity and available pipeline, lack of reliable information, higher costs and lower credit ratings.
Using pooled investment vehicles can help address concerns such as risk and liquidity to some degree. But further tools and instruments also need to be incorporated to direct significant amounts of institutional capital into relevant investments.
Multilateral development banks (MDBs) and bilateral development finance institutions (DFIs) often feature in these instruments and tools – underscoring their vital role in mobilising institutional capital.
Multilateral development banks (MDBs) and bilateral development finance institutions (DFIs) have played a leading role in supporting economic development in emerging markets.
The potential of these institutions needs to be fully mobilised towards delivering a Just Transition. MDBs and DFIs must be enabled to use their status, market networks and local expertise to go where the private sector currently cannot. By building investable pipelines, track records and, ultimately, functioning markets, MDBs and DFIs can open up investment routes so that private capital can follow.
MDBs and DFIs also play a key role in blended transactions, providing patient, risk-tolerant and capacity building support in partnership with asset managers.
Expanding the volume and pace of capital towards the SDGs generally and a Just Transition specifically requires understanding clearly where the money is flowing and what is happening as a result of capital being invested.
Asset managers, investors and ecosystem builders need to publish results demonstrating what best-in-class Just Transition investments look like in practice – and how strategies are being applied across sectors and themes. Only through collective and consistent transparency on the environmental and social impact investment can the world assess what progress is being made.
What specific actions do different parties need to take now?
All parties in financial markets have responsibility to take action now to help mobilise institutional capital to advance a Just Transition. No matter their starting point, each actor can and should do more to participate in the solutions that will build a more sustainable and inclusive world for all.
The Impact Taskforce identifies priority actions for eight key audiences. The links below provide full summaries of recommended actions for each audience.
Case studies of Just Transition financing instruments across asset classes