The quest for net zero is a path dotted with opportunities and the financial services sector can play the role of an agile and responsible intermediary

The planet has never seen a cataclysmic fallout from irresponsible pursuits as severe as the events of 2020. While the result of a consolidated battle to counter the pandemic hangs in the balance, climate warnings from yesteryears have culminated into disastrous consequences, be it the Amazon or Australia. It is a stark portent of an apocalyptic future, as unabated industrialization and consumerism have been feeding the environment with megatons of carbon for decades while the associated toxicity easily tops the fallout from nuclear disasters.

The net-zero preamble

The pronounced clusters of economic activity in Europe, the Americas, and Asia have realized the need for a multilateral, unequivocal, and resilient response to curb the menace. Since the Paris agreement was institutionally invoked in 2016 under the aegis of the United Nations Framework Convention on Climate Change (UNFCCCC), all countries have been deliberating on means and measures to slash global greenhouse gas (GHG) emissions, restrict the global temperature increase to well below 2 degrees Celsius (2⁰ C) above preindustrial levels, and engage in efforts to limit the increase to 1.5⁰ C in this century.

Global institutions are scrambling to reach the coveted net-zero emissions target. Net-zero, as the name suggests, can be achieved on the back of “carbon neutrality,” where human-induced GHG emissions are balanced with their removal from the atmosphere through processes such as “carbon offsetting.” In a more emphatic extension of the principle related to the transition to a “post-carbon economy,” GHG emissions are eliminated completely. Hence, to paraphrase the journey to net zero:

• Entities embark on a journey to become “low-carbon” economies
• Processes such as carbon offsetting ensure decarbonization and complete removal from the atmosphere
• State of zero carbon attained through meticulous recalibration of industrial processes, culture, and behavior in favor of clean energy.

The vision will have to be bolstered with significant investments to prepare the economies in a turnaround cleanup act with a focus on clean energy, environmentally friendly logistics and transport, green real-estate, and many other associated industries. The financial services sector must get its act together to serve as a key intermediary in the journey to establish sustainable offers, financing mechanisms, and investment principles.

EU-induced green affirmation for a giant step towards net zero

Europe is at the forefront of a climate-conscious industrial revolution. On July 21, EU leaders agreed on a €750 billion EU recovery fund, including €390bn (52%) in grants and €360bn (48%) in loans over the next three years (2021–2023). This fund will complement the 2021–2027 Multiannual Financial Framework (€1.074 trillion). Leaders agreed to earmark 30% of the full budget package for climate objectives (i.e. €550 billion of the overall €1.826 billion). In order to tap into these recovery funds, member states will have to present their national recovery and resilience plans. On October 6, 2020, the EU Parliament voted to cut carbon emissions by 60% by 2030.

As the EU countries embark upon the quest to put together national recovery and resilience plans, they will be grappling with a few fundamental questions.

What are the means and measures to align net-zero ambitions with operational readiness and climate compliance? Do the national plans contain enough granularity to expedite instant implementation? Is there a “one-size-fits-all” template for everyone in the room, irrespective of the economic scale and maturity? What are the priority areas requiring immediate investment decisions?

The sentiments are mirrored in the words of Ursula Von Der Leyen, European Commission President:

“This is Europe’s man-on-the-moon moment. The European Green Deal is very ambitious, but it will also be very careful in assessing the impact and every single step we’re taking.”

Strategic insights from the collaboration between Breakthrough Energy and Capgemini Invent

Breakthrough Energy (a network of entities founded by Bill Gates and the world’s top tech and business leaders to speed the transition to a clean energy future) commissioned Capgemini Invent to prepare cutting-edge analyses and recommendations to supplement the EU directive on the Climate Recovery Fund. The resultant report, entitled “Fit for Net-Zero: 55 Tech Quests to Accelerate Europe’s Recovery and Pave the Way to Climate Neutrality,” has, through rigorous assessment, identified 55 high-impact climate technology projects that can help Europe meet its 2050 net-zero emissions target.

Key highlights from the report can be summarized as follows:

• Dramatic emission reductions are possible in the five key economic areas
  • 55% CO2e reductions below 1990 levels by 2030 and climate neutral economy possible by 2050 across energy, industry, buildings, transport, food, and land use
• More innovation investments mean better jobs
  • Need for €144 billion of public and private investment annually and creation of 12.7 million high-quality and resilient jobs
• This is a massive economic opportunity
  • Potential to create €790 billion of gross value added by 2030, building towards a €12.9 trillion opportunity from 2030 to 2050
• These are attractive returns on investment
  • €9 of future turnover for every €1 invested in a clean energy portfolio by 2050
• There are cascading benefits
  • Improved air quality, noise pollution reduction, increased energy dependence, enhanced European tech leadership, expansion of low-carbon industries, improved food safety
• Not all technologies are at the same stage of maturity.

Capgemini’s new carbon reduction targets have been approved by the Science-Based Targets initiative (SBTi), furthering the Group’s intent to realize its net-zero ambition by 2030.

The role of financial services in the transition

The financial services sector is closely watching the developments pertaining to climate and energy transitions. Leading FS firms have outlined aggressive timelines and plans to decarbonize their businesses and espouse a robust climate strategy. While sustainable banking offerings such as green mortgages, green bonds, eco-friendly cards, clean energy financing, impact investments have been launched globally, players have been strengthening their climate-centricity through the deployment of green IT and real-estate propositions, climate risk assessment and modelling, circular economy, social and community outreach programs.

I believe that the findings of the report may open a plethora of opportunities for us in financial services. The FS business of Capgemini Invent has developed robust sustainable offerings to cater to global banks, insurers, and asset managers through tools, frameworks, benchmarks, and partnerships.

The following areas will provide fertile ground for testing our resilience:

Sustainable screening and due diligence: We can assess the sustainable maturity of our clients and propose the right fitment from 55 tech technology quests to complement their net-zero strategy.

Sustainable design, IT, and operations: We can leverage planet-centric design experiences into product development, define, craft, and embed green IT propositions, industrialize eco-centric operations such as remote working and sustainable lean principles.

Sustainable data measurement: We can help our clients measure the impact of their net-zero quest through data elements in ways such as ESG/CSR reporting, visualization, responsible modelling, and algorithms.

The FS sector can be a responsible ally to the cause of a sustainable planet, and we have a moral commitment in the journey.

Stanislas De Roys

Expert in Banking Sector Transformation

SVP, Capgemini Invent France