Green capex lending faces up to the reality of an energy crisis
Banks want to capitalize on the surge in green capex borrowing as corporates rush to decarbonize. Cost inflation has increased the risks involved but not the long-term benefit of carbon reduction.
The structural capital expenditure needs of corporates are undergoing rapid change, as firms rush to exploit investors’ seemingly insatiable appetite for cleaner assets. However, uncertainties around stranded assets and returns on investment are now top of mind for those lenders as the global energy crisis drives up input costs.
The International Energy Agency projects that transition-related investments must reach $4 trillion annually by 2030 to meet net-zero targets under the Network for Greening the Financial System 1.5-degree scenario; while a recent McKinsey report puts average annual spending on physical assets at $9.2 trillion a year by 2050.
Much of this spending will be driven by corporates’ evolving infrastructure and technology needs.
Most companies that are trying to build out green infrastructure now are faced with cost inflation and keep having to update expenditure plans
Goldman Sachs expects primary energy capex to grow 60% by 2025 to $1.4 trillion, according to a recent Carbonomics report. The firm suggests that European leaders’ interest in energy security will drive renewable power and network infrastructure capex upwards, but that it will also revive capex growth in traditional energy sectors like natural gas.