How do we finance the transition to a net zero economy? That was the $275 trillion question put to three leading experts at Baringa’s recent Financing the Transition to Net Zero event. 

Alan Haywood, Senior Vice President of Sustainability at BP, Marina Skrinar, International Climate Change Lead at the Department for Energy Security and Net Zero, and Lucas Aranguena, Global Head of ESG & Sustainable Tech at Santander, shared their ideas and expert insights on this challenging question with the audience at the historic St Ermin’s Hotel in the heart of Westminster.

One point was agreed from the outset: governments, corporates, and financial institutions will need to act together in a way that has never seen before. We, as a world, are in uncharted territory, with a goal that we are not on track to meet. Radical thinking and unprecedented cooperation are required.  

The focus must be on extreme incentivisation  

We live in a capitalistic world driven by laissez-faire economics, where shareholder returns often speak loudest and unified global policies are not an option. So whether you’re a fan of the carrot, the stick, or both, incentivisation is the best way to revolutionise.  

The path to financing net zero rests on policies that put new guardrails in place—guardrails that force the private sector to redefine its risk appetite, develop new cost-benefit scenarios, and overhaul its approach to investment. To get things started, governments will need to be market-makers. This means accepting potentially uncomfortable levels of debt in the short term.  

Specifically, what needs to happen? 

1. Countries should implement tax breaks, subsidies, and investment frameworks to ignite a renewables revolution: Having incentivised an impressive rollout of offshore wind over the past 20 years, the UK has led the way for renewables in Europe. But the United States’ Inflation Reduction Act (IRA) is a global game-changer. Signed into law in August 2022 by the Biden-Harris Administration, the IRA will invest $370 billion into US clean energy solutions, strengthen supply chains, lower energy costs, and ultimately reduce carbon emissions by 50-52% by 20301.

The Act aims to deliver 40% of the benefits from clean energy investments to disadvantaged communities, provide contracting opportunities to small businesses and offer bonus credits for projects in economically disadvantaged communities. Most importantly however, it effectively communicates a clear system for incentivising green investment in the US (ie $3 for every kg of clean hydrogen produced2). This has triggered immediate policy responses from Canada3 and the European Union4, having a significant knock-on effect beyond US borders.  

Imagine if more developed countries implemented policies as ambitious as the IRA? Adam Smith’s invisible hand would deliver us to net zero much quicker.  

2. Countries (or regional alliances) should implement a carbon tax and a carbon border adjustment mechanism (CBAM): Incentivising renewables investment, as the IRA does, is clearly very important. But in addition to increasing the supply of renewables, we need policy that incentivises the right corporate behaviour, particularly for carbon-intensive industries.  

Carbon taxes (which internalise the external cost of greenhouse gas emissions), and carbon border adjustment mechanisms, would have an immediate effect on corporate behaviour globally if implemented widely. Carbon taxes could easily be added to existing fuel taxes5 to incentivise producers and consumers to choose lower carbon options6 

Carbon border adjustment mechanisms, such as the EU’s CBAM7, would force carbon-intensive industries to take responsibility for their supply chains’ emissions. With a CBAM, ‘carbon leakage’ (when businesses move operations abroad or use non-domestic suppliers to avoid carbon taxes), would not be possible, having a material effect on emissions from the hardest-to-abate sectors.  

3. Governments, including local governments, should remove barriers to action: In addition to the high-level policies aimed at large companies, we also need policies (or in some cases the removal of policies) aimed at smaller actors. For example, individuals can’t take the bus (instead of drive) if there is no decent bus network. And they can’t buy an electric vehicle if there aren’t sufficient charging networks.  

Small businesses won’t recycle their waste if it is prohibitively expensive for them to do so, nor will they install solar panels if getting planning permission is a lengthy and painful process. Simply by removing these barriers to action, we can incentivise the right behaviour at the local level.  

Financing extreme incentivisation: We need to radically change how we think about risk and debt 

The common thread between the three recommendations above is policy. We desperately need more policy and regulation to incentivise change. As UN PRI CEO David Atkin said recently, “Ultimately, the systemic changes we need will come from the policy sphere8.” 

The audience at Baringa’s event reached the same conclusion when asked about the biggest challenge to reaching net zero via a live poll. Close to half the attendees cited a lack of government policy as the biggest hindrance to reaching net zero globally. This was followed by a lack of financing (particularly for developing countries) at 31%, a lack of suitable technologies at 12%, and the lack of corporate action at 10%.  

Policy, however, is often, but not always, constrained by financing. For example, tax incentives cost governments money. Buses and electric vehicle networks cost money. Decarbonising a manufacturing plant to avoid carbon taxes costs money. Financing risky green investments costs money. Money that governments, financial institutions and companies around the world say that they simply don’t have and are unable to access.  

The current macroeconomic thinking around debt is limiting spending that could, quite literally, save the planet. Countries fear heating up their economies and causing inflation, getting a bad sovereign credit rating, and going bankrupt. Corporates fear share prices plunging as their balance sheets go deep into the red with excessive capital expenditure. And banks fear becoming overleveraged.  

Meanwhile, the damage caused by climate change is likely to make these seem like small problems 50 years from now. Millions of people will be displaced and thousands of businesses will be non-operational due to drought, flooding and regular extreme weather events. As such, all three actors—governments, corporates and financial institutions—must fundamentally rethink their attitudes to risk and debt. 

The Sixth Carbon Budget Report9 by the UK’s Climate Change Committee has highlighted the financing that is needed to reach net zero in the UK. It expects the operational cost savings to be similar to the annual investment required to reach net zero by 2050.  

The conclusion? Yes, we need significant amounts of upfront spending. But when examined over a 25-year time horizon, it makes logical sense to commit to this. What’s more, the significant amounts of spending needed only amount to 1-1.5% of total GDP. It is not beyond the realm of the possible.  


We are not on track to limit global warming to 1.5 degrees Celsius by 2050. And we are not on track to finance a global transition to net zero. The result of missing these targets is catastrophic, as clearly detailed in the IPCC’s most recent report10.   

We need action from policymakers to incentivise the corporate strategies, investments and personal choices that will get us there. And all actors need to change the way they think about risk and debt. There is no Plan B for humanity if we get this wrong, and our current fiscal and monetary frameworks will not support the level of change required.  

We need nothing short of a new international finance system that can flex to the requirements of this existential crisis, with individuals across all organisations being prepared to take bold decisions that align with a net zero future. The recent proposals for more ‘blended financing’, offer a glimmer of hope, but are not real yet, and not enough.  

In short, we need radical thinking and unprecedented cooperation to finance the transition to net zero—from everyone.  

And we need it now.   

A huge thank you to Alan Haywood, Marina Skrinar and Lucas Aranguena for participating in the panel session at our ‘Financing the Transition to Net Zero event’, and to all the Baringa clients and guests that attended. 

Read more: Path to net zero in Financial Services


  1. White House (2023). Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action. Available at: [Accessed 04 April 2023] 
  2. The International Council on Clean Transportation (2023). Can the Inflation Reduction Act Unlock a Green Hydrogen Economy? Available at:,until%20they%20expire%20in%202032 [Accessed 30 March 2023] 
  3. Politico (2023). ‘Canada’s C$80B response to U.S. clean energy push: ‘We will not be left behind’. Available at: [Accessed March 30 2023] 
  4. European Commission (2023). Net Zero Industry Act. Available at: [Accessed 31 March 2023] 
  5. IMF (2019). ‘Carbon taxes have a central role in reducing greenhouse gases’. Available at: [Accessed 03 April 2023] 
  6. The World Bank (2023). ‘Carbon Pricing Dashboard: What is Carbon Pricing?’ Available at: [Accessed 03 April 2023] 
  7. European Commission (2023). Carbon Border Adjustment Mechanism. Available at: [Accessed 11 April 2023] 
  8. ESG Investor (2023). ‘A New System for Stewardship’. Available at: [Accessed April 04 2023] 
  9. Institute for Government (2021). ‘Paying for net zero’. Available at:,year%2C%20before%20benefits%20are%20counted [Accessed 04 April 2023] 
  10. Intergovernmental Panel on Climate Change (2023). AR6 Synthesis Report. Available at: [Accessed 03 April 2023]  

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