APAC: The shift towards sustainable lending is increasingly recognized as the crucial tipping point for financial institutions (FIs) to transition to a net-zero future effectively. According to KPMG’s January 2025 report, “Sustainable Finance Revolution: How Banks Can Profit from Sustainable Growth,” featured on Asian Banking and Finance, the true measure of this transition will be when sustainable lending becomes an integral part of business practices, driving real economic decarbonization outcomes.
KPMG argues that adopting a sustainability-first approach will be the game-changer on the path to net zero, significantly influencing how banks and financial institutions align with long-term environmental goals. This comes at a time when global experts point to an estimated funding gap of US$14 trillion to US$17 trillion annually in efforts to achieve a zero-carbon future, as highlighted in a 2024 Force for Good report.
The role of banks in closing this gap is pivotal. As Richard Bernau, lead of ESG for global banking & capital markets at KPMG, along with Martine Botha and Monika Dangova, global and UK-based experts, noted that while significant profits are still concentrated in high-carbon industries, banks have a major opportunity to pivot toward more sustainable lending practices that support the decarbonization of these sectors.
A key strategy is the expansion of financial support beyond traditional ‘green’ projects to include critical transition finance. Transition finance refers to the financial products designed to support the reduction of emissions in high-emission sectors such as energy, transport, agriculture, and heavy industry. This is essential not just for meeting urgent environmental needs but also for tapping into significant commercial opportunities.
KPMG’s analysis suggests that transition finance could provide up to US$98 trillion in economic benefits globally.
The push for financing the decarbonization of carbon-intensive sectors could also lead to substantial social and economic gains, including job creation and improved health and well-being. However, these benefits hinge on banks having robust climate risk assessments in place, given that the economic fallout from climate inaction is projected to cost up to US$43 trillion, according to a 2015 report from the Economist Intelligence Unit.
According to Bernau, a fundamental shift in how banks approach finance is needed. This requires a major rethink in the mindset of financial institutions, which must view sustainable lending as integral to their business model.
For those banks that adopt sustainable lending early, the rewards are becoming increasingly clear. Data from Bloomberg Professional Services reveals that, in 2023, sustainable funds outperformed traditional investments across all major asset classes and regions. Additionally, the issuance of impact bonds, including green, social, and sustainability-linked bonds, reached a staggering US$939 billion.
As the financial sector continues to embrace the potential of sustainable lending, it’s becoming evident that this approach not only supports global decarbonization but also offers significant growth opportunities. The transition to a low-carbon economy is not just an environmental necessity—it is a financial imperative with vast economic potential.