As the race to Net Zero continues to take shape, one point is clear: It will require a significant shift not just in corporate strategy and government policy, but also in global banking and finance.
The financing needs alone are enormous. The World Economic Forum estimates that moving to a Net Zero future will require more than $50 trillion in incremental global investment by 2050, with $5 trillion in annual capital investment needed by 2030. At the same time, corporations and institutions will need to rethink how they raise capital, invest and manage risk. This all has immediate implications for corporate and investment banking.
Morgan Stanley Research estimates that wholesale banks stand to add $15 billion to $20 billion in “green” revenue over the next three to five years—and in the process can benefit by deepening client relationships, attracting new talent and, potentially, rerating their stocks.
“In contrast to the past 20 years, when banks had limited opportunities to monetize booming growth industries, such as the internet or artificial intelligence, banks stand ready to actively provide financing for decarbonization,” says Betsy Graseck, Global Head of Banks and Diversified Financials Research. “We see credible signs that wholesale banks are repositioning the business model to defend existing revenue pools and build new revenue streams in decarbonization finance and carbon trading.”
In a new collaborative BluePaper, Morgan Stanley Research and consultancy Oliver Wyman looked beyond the current headwinds for the banking sector to understand the key drivers of growth and disruption a little farther down the road. The authors identified six market shifts—corporate demand, rates normalization, private markets demand, macro volatility, commodities volatility, and China wholesale banking—that could boost annual revenue pools by $70 billion.
“At an industry level, we think global wholesale banking revenues will sustain well above 2019 levels over the next several years and reach 2021 levels by 2024,” says Graseck.
Meanwhile, two major disruptive forces—digital assets and climate transition— could create additional opportunities and risks that the industry and investors cannot overlook. Here’s a look at why decarbonization could help boost banking sector revenues over the next three to five years.