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Swiss Re warns of $270tn net zero investment deficit

7th October 2022 - Author: Matt Sheehan

Analysts at reinsurer Swiss Re have warned that over $270 trillion in climate investments will be required across the energy, transport, buildings and industry sectors globally to meet the Paris Agreement and 2050 net-zero targets.

financial-climate-riskA new Swiss Re Institute study asserts that climate investments must be made “sooner and on a much larger scale” to hit these goals, but concluded the shortfall could be accounted for through collective efforts by public and private sectors.

Given the long-term horizon of their liabilities and the long-term capital they have available to commit, Swiss Re also emphasised that institutional investors such as pension funds or re/insurance companies are well positioned to play a role in the green transition.

It notes, for example, that the insurance industry can boost the market by financing emerging decarbonisation solutions such as carbon capture and removal technologies and investments in sustainable infrastructure.

As a risk absorber, the industry can also improve the risk-return profile of climate-friendly investment projects, and, by pricing risks and sharing risk knowledge expertise, the industry can enable market participants to make clear and informed investment decisions.

Stratumn, by SIA Partners

“The green bond market still accounts for less than 2% of the value of the global bond market, meaning it is far too small,” noted Jérôme Haegeli, Group Chief Economist at Swiss Re. “Stronger action is needed on reducing barriers to investment and international convergence on the taxonomy for climate and green investments.”

He also observed that investments in decarbonisation have been growing by an average of 5% per year since 2016.

“To put this into perspective, if this trend continues, it means that the 2050 net-zero targets will likely be missed by 20 years,” Haegeli explained. “Identifying the climate investment gap makes it possible to track annual progress towards a net-zero economy. But change can only happen at the pace required if the public and private sectors work together to unlock capital and channel it in a targeted way.”

According to Swiss Re’s research, the largest investment gap towards net-zero targets is in the transport sector, at an estimated $114 trillion, with most investments needed for electric vehicle infrastructure.

In the energy sector, the investment gap is estimated to be $78 trillion, with the main shortfall in renewable energy and related infrastructure.

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