Recommendations to financial regulators

The report Decoding Net Zero for Financial Institutions in Emerging Markets, developed by auctusESG with support from the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO), addresses the pressing need for banks and capital market regulators in emerging economies to align with the global net zero agenda. While over 139 countries have made net zero pledges, the report underscores that emerging markets face a distinct set of challenges in translating these commitments into practical action. These countries must balance rising energy demands and development priorities with evolving climate responsibilities, all while navigating limited access to climate finance. The report offers a contextualised and actionable roadmap to help financial institutions support these national and global objectives, recognising their pivotal role in driving low-carbon economic transitions.

A key insight from the report is the recognition of the confusion that persists around net zero terminology and targets. Terms such as carbon neutrality, climate neutrality, and net zero greenhouse gases are often used interchangeably, creating ambiguity and limiting comparability. This lack of clarity is further complicated by variations in timelines, emissions scope, and sectoral coverage. For example, while some countries aim for net zero by 2035, others have committed to 2070, and the gases or sectors covered also differ significantly. Financial institutions are often left uncertain about their specific responsibilities in this landscape, facing fragmented frameworks, inconsistent policy signals, and gaps in data. The report addresses these challenges by distilling global goals into strategies that are feasible within the policy and market environments of emerging economies.

To support effective action, the report presents a set of practical recommendations for banking and capital market regulators. These include developing sector-specific transition pathways, implementing guidance for climate-related due diligence, and adopting taxonomies that are consistent with international standards while reflecting national priorities. The report highlights the need for stronger governance mechanisms, improved institutional capacities, and greater transparency through enhanced climate disclosures. It also emphasises the inclusion of nature-dependent sectors such as agriculture in regulatory considerations and advocates for fiscal tools to incentivise green lending. By centring just transition principles and inclusive economic development, the report not only offers a critique of current gaps but also provides a hopeful and grounded vision for how emerging markets can lead the climate finance agenda on their own terms.