Global clean energy investment reached a record $2.2 trillion in 2025¹—up 10 percent from 2024 and continuing a multi-year run in which overall investment in renewables, electrification and low-carbon transport substantially outpaced investment in the supply of fossil fuels. For several years now, this clean-to-dirty ratio has been running at about two-to-one.

National security is one driver of this phenomenon: countries are realising that every unit of electricity generated by wind and solar farms at home is a unit that no longer depends on imported fossil fuels, which are subject to war-driven volatility and the whims of exporting nations. As we outlined earlier in this report, the incentives for countries to wean themselves off fossil fuels have only strengthened as a result of the conflict between the US and Iran.

Yet despite this acceleration, the International Energy Agency estimates that meeting the global climate goal of limiting warming to 1.5°C requires clean energy investment to reach $4.5 trillion per year by the early 2030s, and some analysts put the net-zero requirement even higher at $5 trillion annually. This means we are only about halfway to this goal.

More troubling than the headline gap is the geographic distribution. Emerging and developing economies outside China receive only around one-fifth of global clean-energy investment. Africa receives just 2 percent, despite being home to 20 percent of the world’s population.² For private financial flows, the picture looks worse: emerging markets captured only 8.5 percent of global portfolio allocations and 3.3 percent of climate fund capital in 2025,³ demonstrating that private capital is underrepresented in these regions.

Moreover, the largest pools of capital are not moving at the pace and scale required to close the gap. A study of 35 of Europe’s largest pension funds and insurers found that their investments were concentrated in large emerging markets, with little to no investment in developing economies.⁴ Since 2015, little additional institutional capital has flowed to these markets, and net allocations have even fallen in some areas. UK pension funds allocated just 0.5 percent of their assets under management to emerging and developing economies in 2022.⁵ Where pensions and insurers do invest in these markets, flows skew to listed, investment-grade assets in established sectors: low- and middle-income countries have seen a small decline in private markets allocations, even as high-income countries saw a 20 percent increase in primary market infrastructure investment in 2023.⁶

The other side of the story is one of the least-discussed but most consequential dynamics in sustainable finance: the continued growth of fossil fuel-related financing in emerging and developing economies. While investors in developed markets like Europe have acknowledged that continued fossil-investment could produce ‘stranded assets’ as the energy transition progresses, many lower-income countries are still expanding their fossil-fuel infrastructure—financed by sovereign debt, development finance and bilateral lending—in response to legitimate energy access needs and structural limitations that the finance community has yet to overcome. Many emerging and developing regions receive a larger share of global fossil-fuel investment than of clean-energy investment. In aggregate, emerging and developing economies outside China were expected to account for 44 percent of global fossil-fuel investment but only 18 percent of clean-energy investment in 2025.⁷ 

The scale of this exposure is significant. Despite commitments made at a 2021 global climate conference to end public support for unabated coal, oil and gas abroad, cumulative fossil fuel financing from development finance institutions and export credit agencies has continued. China's policy banks and state owned enterprises have been important sources of fossil-fuel finance in Sub-Saharan Africa and parts of Southeast Asia, though there are clear signs of a pivot toward renewable energy in these institutions’ overseas financing.⁸ Progress in the public sector is slow, but it is at least occurring. This cannot be said for the majority of the largest private-sector banks financing fossil fuels. In 2025 alone, the world’s 65 largest banks provided $906 billion in fossil-fuel financing, an 8 percent year-over-year increase. This is equivalent to approximately $2.5 billion per day, or more than $100 million per hour. US banks accounted for 32 percent of fossil-fuel financing worldwide.⁹

The stranded-asset risk embedded in this financing is substantial and underappreciated. Fossil fuel projects being financed today—some with 30- to 40-year operational horizons—are being built against a backdrop where clean energy costs are improving rapidly and where carbon pricing or regulation may erode their commercial viability well before the debt is repaid.

It is, of course, an urgent ethical imperative to deliver modern energy access to the hundreds of millions of people, concentrated in Sub-Saharan Africa, who still do not have lights at night or pumps for clean water. If all the fossil investment were going towards this purpose, it would be hard to criticise, even though solar panels and batteries are looking like the better path for delivering power to much of Africa. But in fact, much of the fossil investment in poor countries is actually going to secure new supplies of oil and gas to be sold to Western consumers on the world market, with little expectation that ordinary Africans will benefit from the hydrocarbon riches.¹⁰

The case for accelerating sustainable finance flows to emerging markets is both moral and economic. Despite its success in rolling out renewable energy, India was the country with the third-largest carbon footprint in 2025.¹¹ In Brazil, roughly two-thirds of emissions derive from agriculture and land use; the remaining third from industry, a share that is growing as the economy expands.¹² Both countries present compelling investment opportunities alongside these challenges: critical mineral reserves, rapidly declining clean-energy costs, large and growing domestic markets, and, in Brazil's case, a renewable power system that is already among the world's largest and most integrated.

The challenge is that institutional capital is not moving at the pace or scale required. Three barriers repeatedly emerge. First, genuine or perceived risk: technology immaturity in some markets, sovereign credit concerns, contract enforceability and currency volatility can represent real constraints on the risk-adjusted returns that investment committees require. Second, familiarity and transaction costs: deploying capital into unfamiliar markets imposes real costs even where project-level returns may be comparable to rich-country markets. Third, regulatory friction: EU rules make emerging market investments structurally more expensive for European insurers, regardless of underlying project quality.

A strategy called ‘blended finance’ has emerged to tackle some of these problems. Financing deals may include some public or charitable money that would take the first loss in case of financial problems, reducing risk for commercial investors, and thus lowering the overall financing cost of a project. Likewise, grants or subsidies can be used more directly to improve the returns of a project. They can buy insurance or hedge against losses due to changes in currency rates. The problem is that not enough public or charitable money is available for these purposes. Rich countries have been cutting back their foreign aid even as they publicly acknowledge that poorer countries need more help to cope with a climate crisis not of their making.

Getting investment flows right is by no means the only challenge the world faces in confronting the costs of the climate crisis. Property losses from natural catastrophes are escalating as heat waves, wildfires, storms and coastal flooding all accelerate.

Global insured losses from natural catastrophes have followed a 5 to 7 percent annual growth trend since 1994, roughly double the 2.7 percent rate of overall economic growth over the same period. However, insurance companies do not attribute much of that growth in losses to climate change. Other forces are at work, notably the increase in asset values in exposed areas, driven by urbanisation and rising populations in regions susceptible to natural perils. Insurers argue that the impact of the changing climate has been relatively small so far. However, given the worsening trends in natural disasters, we expect the growth in losses to accelerate.¹³

A structural feature of the industry shapes how this risk is absorbed. Because most property coverage is written on annual contracts, primary insurers can reprice, or withdraw coverage, each year, so climate change registers as a rolling underwriting decision rather than a long-term solvency threat. Those primary insurers tend to buy a product called reinsurance, from huge companies like Swiss Re or Munich Re, for potential losses that might exceed their capacity to pay. So the work of pricing a changing climate falls disproportionately to the reinsurers and the catastrophe-modelling firms that serve them. Reinsurers were among the earliest financial actors to link a warming climate to potential for rising losses. In some cases they have limited the scope of coverage or stopped writing reinsurance for perils, or for regions, they deem to have become too risky.

That, in turn, is feeding through to the retail marketplace and forcing policy cancellations and withdrawals. Insurers have been exiting high-risk areas and declining to renew policies across parts of the US, including California, Colorado and the Gulf Coast. In California, the retreat was driven partly by regulation: state rules long prevented insurers from raising rates to reflect mounting wildfire risk, so rather than write cover at prices they judged inadequate, several large carriers simply left. The displaced homeowners and businesses fall back on state-run insurers of last resort, whose coverage is usually narrower and more expensive. Many billions of dollars of potential losses are creeping off the books of private insurers and onto backstop insurance programs whose losses, when they occur, are likely to be socialised across the wider industry and the public.

However, insurers are by no means just innocent victims of climate change. Insurance companies are among the largest institutional investors, and a substantial share of US insurers' portfolios is invested in fossil-fuel-related assets,¹⁴ even as their underwriting books start to absorb the physical losses a warming climate produces. The sector is thus exposed on both sides of the balance sheet: to physical risk on the liabilities it underwrites, and to transition and stranded-asset risk on the investments it holds.

In some parts of the Global South where insurance penetration is low to begin with, the consequence of rising climate risk is not just premium increases, but potentially a permanent lack of coverage. This risks further expanding the protection gap: the difference between total economic losses and insured losses. In 2024 and 2025, more than half of catastrophe losses were not covered by insurance at all.¹⁵ The gap matters for development finance because uninsured losses either devastate households directly or fall on governments, which must divert scarce funds to disaster response at the expense of longer-term investment, including in the clean-energy infrastructure that would help to mitigate future risk.

Turning from insurance to sustainable finance more broadly: genuinely sustainable finance requires a fundamental set of rules and guidelines. Companies need to measure their emissions consistently, make sustainability disclosures in comparable ways and set credible targets for reducing emissions. Without such details, financial institutions lack the information they need to make decisions. These rules and guidelines are playing an ever more central role in business and financial decision-making. But they are also facing pressures that could weaken and undermine them if we do not take collective action to strengthen and reinforce them. They need support from governments, businesses and financial institutions.

The Greenhouse Gas Protocol is by far the most widely used system for measuring corporate emissions, but it now faces a competing approach. In October 2025, Carbon Measures, a coalition backed by ExxonMobil, launched a framework based on product-level carbon accounting.¹⁶ Crucially, it counts emissions only up to the point at which a product leaves the producer. For oil and gas companies, that would mean excluding the emissions generated when their products are ultimately burned — which is to say, the bulk of the emissions these companies produce. The debate may appear technical, but the stakes are significant: changing what companies are required to count can fundamentally change how responsibility for emissions is understood.

Meanwhile, disclosure on material sustainability issues also needs support in the face of current political challenges.  The International Sustainability Standards Board was established to create a common global baseline for sustainability reporting, and more than 40¹⁷ jurisdictions have adopted or committed to its standards. But there is not yet sufficient global convergence around that baseline. The current US administration is hostile to any mandatory climate disclosure, and is in the process of rescinding the Biden administration’s climate disclosure rules for US-listed companies.

The European Union has developed its own sustainability reporting regime and it is very much a live debate as to how to ensure the EU rules are as aligned with and complementary to the ISSB as possible. Whether we can get to a globally coherent and comparable global baseline on corporate disclosures of material sustainability factors will be critical to progress moving forward.

Meanwhile, corporate climate targets also face pressure. The Science Based Targets Initiative has helped thousands of companies translate climate science into emissions-reduction targets. The task now is to keep attracting new companies and to retain existing participants in the face of US political pressure and some of the real world challenges of the transition. SBTi launched a refreshed flagship corporate net-zero standard in 2026 that has been well received by business. The initiative then scored a major success when Walmart recommitted and set a new target. Asia is a major driver of continued growth and in 2025 saw the highest proportional growth anywhere in the world  in companies setting SBTi-validated targets.

This matters because there is good evidence that science-based targets work: studies have associated them with meaningful reductions in corporate emissions with no corresponding decline in profitability.¹⁸ 

These institutions may sound remote from the day-to-day business of investing capital, but they provide much of the common language that allows investors to compare companies, assess climate risk and judge whether businesses are genuinely transitioning. Indeed, there are also positive developments. Despite current political pressures, the great majority of companies are continuing to pursue their climate targets, commitments and reporting because they see them as key tools to manage their businesses effectively. After setbacks last year, the Net Zero Asset Managers initiative relaunched earlier this year with over 250 signatories. Companies and investors alike continue to factor climate risks and opportunities into their decisions as key business inputs.

There are indeed reasons to expect a bumpy ride in sustainable finance over the coming years. But political momentum and economic momentum are not the same thing. The underlying economics of the transition remain powerful. Investment in clean and renewable energy continues to outpace fossil-fuel investment and is accelerating, not decelerating, amidst political volatility globally. While there are headwinds, we remain optimistic that the building blocks of carbon emission measurement, sustainability disclosure and science-based targets are in place. If we work together to strengthen this critical scaffolding, we believe we can continue to see meaningful progress in financing the transition required for a sustainable economy.