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Net-Zero Navigator: Where will the money come from?
- The ability to finance the net-zero transition determines the speed and timing at which CO2 levels will stabilise
- This has a knock-on effect on temperature levels and the resulting physical impacts, such as productivity losses from heat stress
- Historically, financing has been a bottleneck; solving this means looking at unconventional funding sources and innovative products
Show me the money
Transitioning to a net-zero economy requires substantial investment.
The range of estimates varies between USD3.5trn and USD7.3trn per annum, depending on the scope and definition of green. In 2024, BNEF estimates investment of cUSD2.1trn1, equivalent to circa 2% of global total GDP in 20242.
So far, debt has been the major financial instrument used to transparently channel climate finance to fund climate actions. In 2024, over 65% of newly raised funding for energy transition and climate tech came from debt financing3.
Average annual investment estimates
Considering the big investment gap and short-term macroeconomic outlook, the current landscape of climate finance or clean energy investment provision is manifestly insufficient to support the net-zero transition. Financing will have to be found from different sources, including from some unconventional places, such as national oil companies (NOC). This is controversial as they are often perceived as the biggest obstacle to economy-wide decarbonisation. But pragmatically – taking into account political will, domestic priorities and energy security concerns, and the fact that energy transition will not happen overnight – it makes sense to look at how cash from oil and gas can be deployed effectively for transition. These revenue-rich businesses can provide stable and substantial cash flows to governments and SWFs, which can spend the dividend received from the NOC on supporting domestic and foreign energy transition, and diversifying their portfolio and risks.
Funding is vital not only to drive efforts to reduce emissions, but also to achieve inclusive resilience. Adaptation finance supports the ability to manage climate-related environmental risks at the same time as protecting people, communities and economies. This in turn safeguards investments, enables inclusive growth, reduces systemic risk and supports productivity.
However, the global adaptation financing gap is significant, with international public financing flows at USD28bn in 2022, compared to an estimated need of up to USD359bn annually (according to the UNEP Adaptation Gap report 2024). What’s more, at a national level, efforts to reduce emissions through nationally determined contributions (NDCs) often fail to join up fully with national adaptation plans (NAPs), with just 16% defined as fully aligned. However, we believe there is an opportunity for the currently underutilised private sector to play a greater role here. Investment in carbon sinks and nature-based solutions, for example, have the potential not only to contribute towards climate targets, but also to build resilience to physical climate risks and drive the net-zero transition.
Our Sustainability Approach
Sustainability research is entering a new phase, with the transmission mechanism of issues affecting value creation into financial decision making at its core. We think that delivering a net-zero transition is the most material sustainability issue with the highest likelihood of disrupting growth and asset value potential, both positively and negatively. We expect the economics of driving net-zero outcomes to take centre stage over policy momentum.
New questions and new answers
Growing and protecting wealth for the future is central to investor mandates. To deliver this, investors must make good decisions about the value creation potential of the asset classes they invest in. We argue that sustainability research is intrinsic to value creation because it focuses on the issues driving prosperous outcomes that enable people to thrive. If people do not thrive, social stability is threatened, and economic activity is unlikely to reach full potential, in turn affecting growth expectations and the political economy. As expectations around economic growth and productivity fluctuate, so does the market value of financial instruments. But sustainability research is at a crossroads, which means it’s time for a reinvention. What will this look like? We expect investors to focus on the transmission mechanism of value creation and disruption from sustainability factors across asset classes, with three shifts in analytical thinking taking place.
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- Bloomberg New Energy Finance (BNEF), Energy Transition Investment Trends 2025, 30 January 2025
- IMF, World Economic Outlook, April 2025
- BNEF (2025), Energy Transition Investment Trend 2025
- BNEF, Global Investment in the Energy Transition Exceeded $2 Trillion for the First Time in 2024, According to BloombergNEF Report, 30 January 2025
- Independent High-Level Expert Group on Climate Finance (IHEGCF), Raising ambition and accelerating delivery of climate finance, November 2024
- OECD, Massive investment is needed in sustainable infrastructure to build climate change resilience, 9 April 2024
- Energy Transition Commission, How to Make the Money Flow for a net-zero economy, March 2023
- Climate Policy Initiative, How big is the Net net-zero financing gap?, September 2023
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People power: Enabling the net-zero shift
People are at the heart of the net-zero transition.
