Investment flows to the net zero transition: Progress and policy needs

About this briefing

This briefing is intended for national and international policy makers shaping the enabling environment for the global net zero transition. The analysis shows that although many institutional asset owners and asset managers have made progress in directing capital in support of the transition, they are unable to do so at the scale needed in the absence of more stable and ambitious policy.

Section 1 reviews the financing needs of the transition. Section 2 describes the recent rapid increase in investment in the transition and the need for further acceleration. Section 3 places these trends in the broader context of institutional investors’ approach to climate risk management, illuminating some of the challenges to scaling investments and attempts to address them. Section 4 examines how institutional capital is beginning to overcome challenges to investing in transitions in emerging markets and developing economies (EMDEs) where the investment needs for the transition are greatest. The conclusion highlights the need for immediate and decisive policy leadership to scale investment to the transition by government policy makers.

This briefing is one part of a two-part series. The companion briefing, ‘Who invests and how? Unlocking and mainstreaming institutional investment flows to EMDEs’, turns to the challenge of financing the net zero transition in emerging markets and developing economies (EMDEs) where investment is critical to managing system-level climate risks and supporting development needs.

Executive summary

The global transition to net zero demands that governments collaborate with the private sector to drive the largest and most rapid reallocation of capital in modern history.

• Amid record-breaking climate change, pension funds, insurers, and other stewards of long-term capital have expressed deep concern about the systemic threat to capital markets and have called on governments for urgent policy reforms that enable a rapid net zero transition.
• Delivering this transition across energy and land systems will require capital investment of around US$4.5trn-US$6.5trn annually by the early 2030s and remain elevated thereafter.
• The costs of inaction or delayed transition are far higher: while the transition requires an investment of 1% to 2% of cumulative economic output to 2100, the net costs of inaction by that date are estimated at 11% to 27% of cumulative economic output.

Despite record investments in clean energy, global capital flows remain misaligned with climate goals while governments collectively remain committed to fossil fuel expansion.

• Annual investments aligned with global climate goals increased by 26% between 2021 and 2023, reaching US$1.9trn, up from an 8% annual growth rate from 2018 to 2020.
• In 2024, investment in the energy transition worldwide grew to hit a record US$2.1trn, up 11% from the year earlier, while investment in oil, gas and coal totalled US$1.1trn.
• Most of this investment currently goes to clean power and transport, while investment lags in hard-to-abate industrial processes, clean shipping, land use, and adaptation.
• Only 15% of flows reach EMDEs outside of China, undermining the global net zero transition.
• As of 2025, governments collectively remain committed to producing twice as much coal, oil, and gas by 2030 as would be compatible with a 1.5C pathway, highlighting a profound misalignment between national climate goals and real world policy on economic transition.

Institutional investors are eager to fund the transition but need support from policy makers.

• 80% of institutional investors now have processes to identify and assess climate risks
• Investor stewardship and engagement on climate is now widespread.
• Asset owners in PRI-supported investor initiatives have allocated more than US$500bn to climate solutions globally in recent years through their individual investment decisions.
• However, without policy reforms to increase credible, investable transition opportunities, this progress is at risk as fiduciaries will be unable to act on the scale that the transition requires.

Transition investments in EMDEs are multifaceted but need policy support to scale.

• Sovereigns are issuing sustainability and transition-linked bonds.
• Asset managers are creating EMDE-focused funds with public and private debt.
• Blended finance vehicles are de-risking investment for institutional capital.
• However, the scale of these efforts remains modest relative to capital investment needs.
• Independent analysis estimates that private investment in EMDEs outside of China must increase seven-fold from US$135bn currently to US$1trn a year by 2030 for transition needs.
• Mobilising this capital at scale to EMDEs requires a strong enabling environment domestically and internationally, robust financial regulation, and clear economic and sectoral policy.