Published January 17, 2023 | 3 min watch
Key Points
- The energy supply crisis sparked by Russia’s invasion of Ukraine has added new dimensions to energy transition efforts: the financial sector needs to play its part in managing both.
- Banks face risks as the transition progresses, including stranded assets, but well-positioned banks should gain share.
- The supply crisis will accelerate the energy transition: finance needs to keep pace while doubling down on its commitments.
Handling a double crisis
For years, the climate emergency has topped the political and financial agenda in Europe. Now it has been joined by a more immediate crisis – the need to secure energy supply in the context of Russia’s war in Ukraine.
The science makes it clear that the world cannot afford a let-up in longer-term climate efforts while managing the supply issue. So minds are focused on how we can reduce Europe’s dependence on Russian oil and gas, while simultaneously accelerating the shift towards more sustainable energy.
Of course, one of the most critical tools to enable this transition is finance. Huge amounts of investment will be needed in the next few years if the world is to meet climate goals.
Europe has led the way on sustainable financing, with large issuance of green and social bonds. However, the public sector cannot manage the transition alone: banks and other financial institutions will play a huge role in facilitating the transformation we need.
Risks to the banking sector
There are naturally risks as well as opportunities. Increasing government mandates, Stranded assets, higher capital requirements and higher loan losses are potential risks to bank profitability in the longer term.
However, banks that have positioned themselves well to support the transition should gain market share and attract a premium in share price for their reputation.
Faster action required
These trends are challenging for finance. They require fresh thinking and faster action. While the long-term path has been clear for some time, the more recent energy crisis is accelerating the pace and recalibrating the energy transition.
Financial institutions will have to respond: supporting energy supply at affordable prices for consumers, while remaining focused on their energy transition targets.
Further shocks will undoubtedly follow. The challenge for financial businesses will be aligning longer-term climate goals with wider economic, societal and technological innovations that will likely see the world of green finance evolve in ways that are impossible to predict.
This is why our RBC Imagine research program is so exciting: it casts a future lens on these drivers of change, scanning the horizon for disruptive trends that are only just beginning to emerge, and imagining their full impact on the markets of tomorrow.
