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In 2020 we saw a new focus on climate themes from the European oil majors as theyÌýembraced renewables and set new targets for clean growth. This year, we expect aÌýsimilar increase in intensity from the global banks: some may announce a significantÌýreduction in fossil fuel finance while others, perhaps, may exit completely. As a result, weÌýsee more capital flowing to the clean sector, reducing WACC and increasing investment,Ìýthe two ingredients needed for further multiple expansion.

Three possible reasons:

1. traditional risks have increased in the fossil industry as 2020 brought unprecedented demand and supply shocks;
2. new risks are emerging including the real risk of future climate-driven tax or policy changes; legal or reputational risks; and the risk of regulatory intervention to address financial system risk linked to the energy transition;
3. to reposition themselves for growth in clean energy finance, where we could see a 2-6x increase in market size during the 2020s, on ¶·Å£ÆåÅÆÔÚÏße.

Perhaps not much for the banks themselves: they are so levered to the economic outlookÌýthis dominates the investment case, as discussed in our banks outlook. And perhaps notÌýmuch for limiting temperature increases since we may already have a 24% chance ofÌýexceeding 1.5 degrees in the next 5 years. But on the other hand, a step-up in cleanÌýfinance could make a big difference for clean energy names: since finance can growÌýfaster than capex can expand, this implies lower capital costs today and higher growthÌýtomorrow, a powerful combination that leads mathematically to higher multiples.