Banking on decarbonization

Private financial institutions will be vital in the global transition to net-zero greenhouse-gas emissions by 2050, with up to $275 trillion of investment needed for physical assets. Senior partners Daniel Mikkelsen and Daniel Stephens and colleagues note that as much as 55 percent of investment needs could be met by private financial institutions, with commercial banks providing up to $2.6 trillion annually and institutional investors adding as much as $1.5 trillion.

Private financial institutions could finance approximately 55 percent of net-zero investment needs.

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A treemap square chart showing the estimated $6.4 trillion of investments needed for low-emissions assets to meet net-zero goals. The key takeaway is that banks, supported by institutional investors, private equity/venture capital, and infrastructure funds—all grouped under the subtitle of private investors—will account for 55% of required net-zero investments. The remainder will be accounted in descending order, by households, state-owned enterprise, development finance institutions, governments, state-owned finance institutions, multilateral climate funds, and nongovernmental organizations.

Footnote 1: Investment needs based on the Network for Greening the Financial System’s (NGFS) Net Zero 2050 scenario.

Footnote 2: PE is private equity, and VC is venture capital. For institutional investors and PE and VC funds, we are assuming a best-case scenario in which they can meet all investible equity in private corporation globally. This may not be possible in all markets, especially in emerging markets and developing economies where capital markets are less developed.

Source: NGFS Net Zero 2050 Scenario; McKinsey’s Transition Finance Model

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To read the article, see “Financing the net-zero transition: From planning to practice,” January 13, 2023.