On July 2, 2022, at the second meeting of the B20 Indonesia International Advocacy Caucus (IAC), Bob Sternfels, McKinsey’s Global Managing Partner, delivered the keynote speech, probing the best ways for G20 economies to finance the transition to net zero.
Sternfels accentuated the urgent need to accelerate the green transition, while embracing energy resilience, security, and affordability. Although governments and companies are increasingly committed to tackling climate change, massive capital reallocation is still required. Spending on the physical assets needed to reach net zero will amount to $275 trillion between 2021 and 2050, according to McKinsey estimates. This means around $3.5 trillion of new spend per year to 2050.
We need to spend approximately $9 trillion more per year on physical transition assets and reallocate $1 trillion of existing capital … and we need to work together to enable all of these goals.
Financing this requires not only spending more on physical assets, but also reallocating existing capital, Sternfels elaborated. Such investments could create significant growth opportunities in the near term for companies and countries, via several levers: scaling green technologies and products; decarbonizing existing assets and processes; and optimizing portfolios by retiring carbon-intensive legacy assets.
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These processes could be enabled through public and private partnerships, developing bold new market vehicles, and establishing compensatory mechanisms to address socioeconomic impacts. Businesses and governments can work together to drive this shift, and investors have a pivotal role to play.
During the roundtable discussion that followed Sternfels’ speech, Jon Moore, CEO of BloombergNEF, emphasized the need for businesses and financing institutions to work together to streamline and standardize sustainability guidance and practices. Moore laid out three key areas of focus for business: participation in the Task Force on Climate-Related Financial Disclosures (TCFD); signing on to science-based target initiatives; and pledging to a net-zero target.
A financing gap exists between developed and developing countries in their efforts to tackle climate change.
Finally, M. Arsjad Rasjid P.M, the chairman of the Indonesian Chamber of Commerce (KADIN) and host of B20 Indonesia, highlighted that B20 Indonesia will be launching several legacy programs.1 For example, the Carbon Center of Excellence aims to provide businesses with the required knowledge to enter or scale up their carbon-trading activities through a digital web-based platform. It is hoped that the impact of such programs will last well beyond this year’s presidency, with a significant, positive impact on broader G20 communities.
