Driving sustainability transitions through  financial tipping points

Ameli, Nadia; Chenet, Hugues; Falkenberg, Max; Kothari, Sumit; Rickman, Jamie; Lamperti, Francesco

doi:https://doi.org/10.5194/esd-16-333-2025

Articles | Volume 16, issue 1

https://doi.org/10.5194/esd-16-333-2025

© Author(s) 2025. This work is distributed under
the Creative Commons Attribution 4.0 License.

Special issue:

Tipping points in the Anthropocene

https://doi.org/10.5194/esd-16-333-2025

© Author(s) 2025. This work is distributed under
the Creative Commons Attribution 4.0 License.

Articles | Volume 16, issue 1

Research article

|

26 Feb 2025

Research article |

| 26 Feb 2025

Driving sustainability transitions through financial tipping points

Nadia Ameli, Hugues Chenet, Max Falkenberg, Sumit Kothari, Jamie Rickman, and Francesco Lamperti

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Final revised paper (published on 26 Feb 2025)
Preprint (discussion started on 04 Sep 2023)

Interactive discussion

Status: closed

RC1:
'Comment on egusphere-2023-1750', Charlotte Gardes, 03 Oct 2023

Find attached my comments on this fantastic paper. I would be happy to discuss them with the authors, if needed,

All the best,

Charlotte Gardes-Landolfini (IMF)

Citation: https://doi.org/10.5194/egusphere-2023-1750-RC1
- AC1: 'Reply on RC1', Francesco Lamperti, 02 Apr 2024
  
  Please see the attachment, which includes our point-to-point replies.
  
  Citation: https://doi.org/10.5194/egusphere-2023-1750-AC1
RC2:
'Comment on egusphere-2023-1750', Anonymous Referee #2, 25 Dec 2023
“Financial tipping points” is an interesting subject in the interdisciplinary research on critical thresholds in the climate system, and also in the fast-evolving field of climate finance. The main focus of this paper is on “positive” tipping points, in particular on how “the financial system can assume a central role in re-orienting economies onto a net-zero course”.
The structure is reasonably clear. After the introduction, there is a listing of concepts on the “potential for tipping points” in finance, followed by a run-through of “empirical and modelling evidence”, and some conclusions. The narratives of the 5-6 potential financial tipping points are summarized well. Readers with a certain understanding of the climate finance “jargon” can certainly learn from that.
It is not easy to assess the scientific contribution of this summary paper. For a literature survey, it would not be critical and wide-ranging enough. It feels more like an introduction to a research agenda, with various references to scholarly work undertaken elsewhere. There is not much time spent on the definition and critical examination of concepts and insights. There are hardly any figures, stats, tables or graphs – quite striking for a finance paper. A few examples are given but it is often difficult to distinguish “positive” and “normative” statements, exemplified by the fact that the word “can”, e.g., is used 44 times.
For my personal taste, a generic approach using the “financial system” is probably too broad a brush. Sustainable finance and impact investing have made considerable progress in recent years, and so has regulation in the field. New facts are being established, although unevenly across sectors, geographies, financial and political institutions. Academic research needs to be careful not to fall too far behind the “factual” curve.
In terms of minor comments:
Some more definitions could be given for the non-expert readership.

Careful with generic statements and consistency. For example, is the financial system “neutral” (page 9) or “conservative” (page 3)?

There is still a diligent job to be done at reconciling references in the text and the reading list.
Citation: https://doi.org/10.5194/egusphere-2023-1750-RC2
- AC2: 'Reply on RC2', Francesco Lamperti, 02 Apr 2024
  
  Please see the attachment, which collects our point-to-point replies.
  
  Citation: https://doi.org/10.5194/egusphere-2023-1750-AC2

Peer review completion

AR: Author's response | RR: Referee report | ED: Editor decision | EF: Editorial file upload

ED: Publish as is (25 Apr 2024) by Caroline Zimm

ED: Reconsider after major revisions (29 Apr 2024) by Caroline Zimm

AR by Francesco Lamperti on behalf of the Authors (08 Jun 2024) Author's response Author's tracked changes Manuscript

ED: Referee Nomination & Report Request started (21 Jun 2024) by Caroline Zimm

RR by Anonymous Referee #2 (01 Jul 2024)

RR by Anonymous Referee #3 (08 Nov 2024)

Suggestions for revision or reasons for rejection

I think the paper is an important paper for laying out the research agenda on how the financial sector could be an important transformative tool for greening our economies. However before publication I would see the following aspects to be addressed:
1. Introduction: The introduction currently presents a rather negative view of finance. It would benefit from highlighting some of the progress made in sustainable finance over recent years, including advancements in regulation and increased volumes. While acknowledging that these efforts are still insufficient, the paper should recognize these developments, as suggested in the first review and point out more clearly where the actual gap lies. Additionally, incorporating insights from the recent World Bank Finance and Prosperity Report Chapter 3, which discusses climate finance instruments used by central banks, regulators, and supervisors, would be beneficial. In this context, the paper could even more clearly identify the existing gaps that hinder positive tipping points in the financial sector.
2. Clarifying the Tipping Point: The concept of the actual tipping point is not yet clear. The current description suggests a non-linear growth in sustainable finance, but it does not fully explain how sustainable finance will become the new default, even if inducing policies are phased out, which in my understanding would represent a true tipping point rather than just scale.
3. Linking Financial Sector Policies and Decarbonization: The previous review requested a stronger connection between financial sector policies and the decarbonization of the real economy. The paper should address in more detail the actual transmission channels, e.g. if we are talking only about reductions in basis points or more substantial impacts that finance could have. My point is that if finance is seen as such a transformative tool for greening our economies, then it would be good to be more explicit on how it could do so.
4. Demand for Financing in the Real Economy: The financial sector requires demand for its financing, which is often lacking in the real economy. The paper could explore further where the incentives are and what real-sector policies are needed to complement financial sector efforts. The potential risk of a green bubble may also require further attention in this context.
5. Figure 1 and High-Carbon Investments: Figure 1 was added in response to previous reviewer comments to conceptualize the positive feedback loops leading to tipping point dynamics. However, it does not adequately address the reduction in high-carbon investments. The paper should discuss regulatory tools to reduce high-carbon investments earlier, leading up to Figure 1.
6. Trade-offs in Sustainable Finance: The paper indicates that the focus on climate finance could be applied to other aspects of sustainable finance. However, it should also point out the trade-offs between larger climate investments and other sustainability goals, such as nature preservation. Mining is an example where these trade-offs are evident.
Minor Comments:
8. Contradiction on Page 8: The second full paragraph on page 8 seems contradictory. It states that disclosure standards and transition plans could help the transition in an efficient market system but also mentions inherent limits. The messaging here should be strengthened for clarity.
9. Consistency in Terminology: The paper should ensure consistent use of terms such as GHG versus carbon emissions, which is not always the case.

Hide

ED: Publish subject to minor revisions (review by editor) (11 Nov 2024) by Caroline Zimm

AR by Nadia Ameli on behalf of the Authors (21 Nov 2024) Author's response Author's tracked changes

EF by Anna Glados (25 Nov 2024) Manuscript

ED: Publish as is (27 Nov 2024) by Caroline Zimm

ED: Publish as is (23 Dec 2024) by Axel Kleidon (Chief editor)

AR by Nadia Ameli on behalf of the Authors (23 Dec 2024)

Short summary

Transitioning to a net-zero economy necessitates significant changes in the financial system. By promoting collective behaviour, aligning expectations, using public finance, reducing capital costs, and encouraging low-carbon investments, the financial system can play a crucial role in re-orienting economies onto a net-zero course. These mechanisms underscore the potential for positive tipping points in sustainable finance and stress the importance of policy interventions to capitalize on them.