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Banks will generate $44 billion in incremental revenues annually through 2030 from financing the transition, primarily via corporate loans
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American banks will see the largest opportunity this decade, with Asia Pacific then taking the lead through 2050
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Pioneering banks who finance the transition could increase profits by up to 30% by 2050
Global banks and financial institutions have an annual $44 billion revenue opportunity through 2030 from an increasingly pressing requirement for financing and investment in the low-carbon transition, Bain & Company research reveals in a new analysis.
Bain’s study highlights a $600 billion “addressable opportunity” for banks and other global financial institutions to fill a gap for financing and investment in the transition. The financial role for banks eclipses a $430 billion contribution expected from industry and an anticipated $350 billion from governments to meet a total $1.4 trillion financing requirement through 2030.
Until 2030, the most significant opportunity for financial institutions will be in the Americas, Bain’s analysis shows. It projects North American banks could capture $19.3 billion in annual incremental revenues from financing the transition over the period, with a further $3.7 billion for South American banks. Bain projects banks and financial groups in Asia-Pacific would secure incremental revenues of $8.4 billion, European banks some $7 billion annually, and those in the Middle East and Africa $5.5 billion.
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The analysis comes from Bain & Company’s recently launched proprietary Transition Finance model, which provides input for banks’ strategic decisions. The tool considers three transition scenarios, the country-specific nationally determined contributions (NDCs) as well as 1.5° and 2° reduction paths, providing detailed insights into projected incremental revenue pools for regional, sectoral, and product perspectives.
“The low-carbon transition represents a substantial investment opportunity for banks, with significant revenue pools opening up this decade,” said Christian Graf, leader of Bain & Company’s Sustainability & Responsibility Financial Services practice in EMEA. “Yet a wide financing gap remains at current investment levels. The entire global economy will need to increase investment in clean energy and low-emissions technologies to meet the agreed upon reduction pathways. Our analysis shows that the banks which see this gap as an opportunity stand to reap significant rewards.”
Looking beyond 2030
From 2031 to 2050, the incremental investment needed will rise to $2.3 trillion per year. Banks who lead on low-carbon investments stand to increase profits by up to 30% by 2050. Bain expects banks in Asia-Pacific to lead the way during this period.
Essential steps for banks to harness the energy transition
The research underlines five essential steps for banks to harness the transition:
- Determine how demand will emerge by industry, geography, financing vehicle, and client.
- Prioritize the largest opportunities based on clients’ current capital spending.
- Assess current offerings for each segment and identify adjustments to be made.
- Tailor products and advice to clients’ transition goals.
- Raise employee skills to deliver distinct offerings.
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