In 2025, global clean energy investment reached $2.2 trillion. That is double what went to fossil fuels. Solar alone attracted $450 billion, surpassing investment in oil production for the first time. Electricity sector spending hit $1.5 trillion, roughly 50 percent more than the combined capital directed at oil, gas, and coal supply.

Fossil fuel investment was 30 percent higher than clean energy a decade ago. Now, those positions are reversed. The direction of the capital flows are pointing in the right direction.

But direction is not the same as pace. And pace is where the transition is falling short.

The IEA’s updated Net Zero Emissions by 2050 Scenario calls for $4.8 trillion in annual energy investment over the next decade. Current spending stands at $3.3 trillion. The gap is not a rounding error. It is the space in which the 1.5°C target survives or quietly expires.

This editorial examines three layers of that gap: what the IEA says must be financed, what is actually being financed, and where capital is failing to arrive.

 

What the IEA Requires

 

The IEA’s NZE Scenario is the most widely referenced benchmark for a 1.5°C-aligned energy transition. Its 2025 update requires clean energy investment to reach approximately $4.5 trillion per year by 2030. The pathway rests on four pillars: clean electrification, energy efficiency, low-emissions fuels, and methane abatement. Together, these account for over 80 percent of the emissions reductions needed this decade.

Renewable energy capacity must nearly quadruple by 2035. No new oil and gas fields should be approved beyond projects already committed. No new coal mines or mine extensions are required.

The 2025 update also acknowledges something the earlier scenarios did not. Exceeding 1.5°C is now treated as inevitable. The scenario projects warming peaking at around 1.65°C before falling back below 1.5°C by 2100. That return depends on immediate, front-loaded capital deployment and, if investment is delayed, growing reliance on carbon dioxide removal technologies that remain expensive and unproven at scale.

The implication for capital allocators is hard to miss. This is not a 2050 problem. It is a capital deployment challenge that must be substantially addressed by the early 2030s. Each year of underinvestment compounds the eventual cost.

 

What Is Actually Being Financed

 

The aggregate picture is encouraging. BloombergNEF recorded a record $2.3 trillion in global energy transition investment in 2025, up 8 percent year on year. Clean energy supply investment outpaced fossil fuel supply for a second consecutive year, with the gap widening. Electrified transport led at $893 billion, followed by renewables at $690 billion and grids at $483 billion.

But beneath the headline, two dynamics complicate the narrative.

The first is that fossil fuel financing remains high, and in 2024 it actually increased. The Banking on Climate Chaos 2025 report, which tracks the lending and underwriting activities of the world’s 65 largest banks, found that fossil fuel financing climbed to $869 billion in 2024. That is $162 billion more than the prior year and the first increase since 2021. Since the Paris Agreement took effect, these banks have channelled a cumulative $7.9 trillion into fossil fuel companies. Of the 2024 total, $429 billion went to companies actively expanding fossil fuel production and infrastructure.

The largest financiers were predominantly US institutions. JPMorgan Chase increased its fossil fuel financing by $15 billion year on year. Bank of America added $12.7 billion. Citigroup added $14.9 billion. In Europe, Barclays was the largest fossil fuel financier at $35.4 billion, followed by BNP Paribas and HSBC in the $14 to $17 billion range. Santander and Deutsche Bank also increased their lending.

France’s La Banque Postale stands out as the bank with the strongest fossil fuel exclusion policy in the dataset. It provided no financing to oil, gas, or coal producers in 2024, though a small residual exposure of $37 million remained to companies with limited fossil fuel activities in refining or logistics. Compared to the billions flowing from its peers, the contrast is instructive. It suggests that near-complete exclusion policies are operationally feasible, even within global banking groups.

The retreat from voluntary climate alliances has not been neutral. Banks that exited the Net Zero Banking Alliance, including JPMorgan Chase, Bank of America, and Mizuho, were among the largest fossil fuel financiers in 2024. Leaving the alliance and increasing fossil fuel lending happened in the same period. The signal to the market is difficult to interpret as anything other than a deprioritisation of transition commitments.

The second dynamic, however, introduces a useful complication. Through August 2025, Wall Street’s six largest banks cut their fossil fuel financing by approximately 25 percent year on year. Morgan Stanley reduced its fossil fuel lending by more than half. JPMorgan Chase cut by about 7 percent. Wells Fargo, still the largest US fossil fuel lender in 2025, reduced its financing by 17 percent.

This pullback occurred despite explicit pressure from the current US administration to maintain fossil fuel support. Banks are responding to market realities. Long-term fossil fuel projects face volatile commodity prices, regulatory risk across multiple jurisdictions, and a structural shift in global energy demand toward electrification. For a bank, the risk-return profile of a new deepwater development or refinery has weakened relative to clean energy alternatives.

The voluntary climate commitment framework, including net-zero alliances, portfolio decarbonisation targets, and transition plans, is losing credibility as a signalling mechanism. What may prove more durable is whether underlying market incentives are aligning with the transition on their own terms. If banks are cutting fossil fuel exposure for commercial reasons rather than climate commitments, the implication for investors is significant: the transition may be more structurally embedded in financial markets than the retreat from voluntary pledges suggests.

Gaps

 

Even if clean energy investment continues to grow at its current pace, three structural gaps threaten to undermine the transition’s effectiveness.

The geographic gap is the most consequential. Emerging markets and developing economies, excluding China, currently invest approximately $270 billion per year in clean energy. The IEA estimates this figure needs to increase five to seven times, reaching at least $1.7 trillion by the early 2030s. More than 90 percent of the increase in clean energy investment since 2021 has occurred in advanced economies and China. The rest of the world has been largely left behind.

Africa illustrates the problem most starkly. The continent is home to 20 percent of the global population but attracts just 2 percent of clean energy investment. Total energy investment in Africa has fallen by a third over the past decade. In 2025, the region’s debt servicing costs are expected to be equivalent to more than 85 percent of all energy investment. At the same time, Africa holds roughly 60 percent of the world’s best solar potential but accounts for only 1 percent of installed solar capacity.

These are not marginal economies. EMDEs account for two-thirds of the global population and will drive virtually all future emissions growth. If capital does not reach these markets at scale, the transition stalls regardless of what happens in Europe, North America, or China.

The equity gap compounds the problem. A joint analysis by the Climate Policy Initiative and the Glasgow Financial Alliance for Net Zero found that EMDEs will need approximately $375 billion in annual clean energy equity investment by 2035. Current trajectories project only $160 billion, leaving a $215 billion annual shortfall. Equity is particularly important because it absorbs early-stage risk and creates the conditions for debt financing. Without it, projects do not reach the stage where they can attract commercial capital.

The cost of capital for a typical utility-scale solar project can be two to three times higher in key emerging economies than in advanced economies or China. This is not a technology problem. Solar and wind are cost-competitive in almost every geography. It is a financial structuring problem, and it is solvable with the right mix of catalytic capital, credit enhancement, and policy reform.

The infrastructure gap is the third constraint. Grid investment runs at approximately $400 billion per year globally, while spending on new generation exceeds $1 trillion. Permitting delays, supply chain bottlenecks for transformers and cables, and the weak financial condition of many utilities are slowing the connection of new renewable capacity. In response to electricity security concerns, China approved nearly 100 gigawatts of new coal power in 2024 and India approved another 15 gigawatts, pushing global coal plant approvals to their highest level since 2015. Grids are less visible and less marketable than a new solar farm, but without grid investment, new generation sits idle.

 

Where Capital Allocators Are Getting It Wrong

 

The data in this editorial points to three failures that portfolio construction and allocation decisions are actively reinforcing.

• The first is the alliance fallacy. Membership in net-zero coalitions became a substitute for capital reallocation, and the market noticed. When JPMorgan Chase, Bank of America, and others exited the NZBA while simultaneously increasing fossil fuel lending, they revealed what the commitments were worth. But the lesson is not that voluntary frameworks failed. It is that investors who relied on them as signals of transition alignment were mispricing the portfolios behind the logos. The question going forward is not whether a bank has a net-zero target. It is whether its lending book is growing or shrinking its fossil fuel exposure in absolute terms, year on year.
• The second is the EMDE blind spot. The $215 billion annual equity shortfall in emerging markets is not an aid problem. It is a mispricing of risk-adjusted returns. Utility-scale solar in sub-Saharan Africa faces capital costs two to three times higher than equivalent projects in Europe not because the technology is riskier, but because financial markets have not built the intermediation structures to price it properly. Asset managers sitting on long-duration liabilities and complaining about compressed yields in developed-market renewables are ignoring the most obvious diversification opportunity the transition offers. Catalytic equity of $12 to $25 billion per year could unlock multiples of that in private capital. The instruments exist. The deployment does not.
• The third is the quiet bet on fossil fuel tail value. Every dollar of new capital directed toward upstream oil and gas expansion or unabated coal capacity is an implicit wager that the IEA's net-zero pathway will not hold. That may prove correct. But capital allocators making that bet should be explicit about it with their clients, their regulators, and themselves. Transition finance that relabels existing fossil fuel exposure without displacing it is not transition finance. It is an extension of the status quo with better marketing.

The benchmarks are not ambiguous. The IEA says $4.8 trillion per year. The world is spending $3.3 trillion. The gap is not closing fast enough, and it is not closing in the right places. Capital allocators who treat this as someone else's problem to solve are, by default, part of the delay.