Acknowledging remaining methodological and data gaps that currently prevent comprehensive alignment assessments, this chapter brings together best available, though still very partial, data and estimates of finance that can be considered as contributing to or undermining climate policy goals across different layers of finance. As climate alignment ultimately requires making all financial flows and stocks consistent with climate goals, such estimates are placed in the context of total volumes, for both finance stocks and flows. Apart from real‑economy investments (capturing investment by all types of actors), the primary focus for other layers is on finance issued, underwritten, or held by private actors. Given the very limited data on climate change adaptation, the chapter focusses on mitigation‑related evidence.
OECD Review on Aligning Finance with Climate Goals
Abstract
Awaiting further methodological developments for comprehensive climate‑alignment assessments, best‑available, although partial, data on finance to activities contributing to or undermining climate goals must be placed in the context of total finance stocks and flows. This needs to be done for all layers of finance, including real‑economy investments, financial assets across asset classes, financial institutions, and financial jurisdictions.
Global real‑economy investments going to activities clearly supporting climate change mitigation are growing but remain a small share of total investments. Estimates for 2022 find investments in clean energy amounted to around USD 1.7 trillion compared to USD 1.5 trillion investments in fossil fuel supply, representing respectively just above and below 6% of total gross fixed capital formation (USD 26.4 trillion). However, more complete estimates of investments contributing to and undermining climate change mitigation are still missing.
For listed corporate equity, available estimates converge on a remaining low degree of alignment in sectors critical to the climate transition. In 2022, listed corporate equity stocks in renewable electricity were estimated at USD 3.7 trillion and USD 9.6 trillion in fossil fuel supply, respectively representing 4% and 10% of global listed equity. There is also evidence of a continued need for improved ambition of emissions reduction targets to further align with climate goals, and of disclosure to support improved and more comprehensive alignment assessments.
While private corporate equity is a significant and growing asset class, it remains a key blind spot in terms of finance volumes going to activities supporting or undermining climate goals. Available estimates find only USD 0.2 trillion (3%) out of a total of USD 7.6 trillion of private corporate equity stocks were going to climate‑aligned activities in 2022. There are currently no estimates of private corporate equity financing activities undermining climate goals.
Within the corporate debt securities asset class, flows and stocks of green bonds remain lower than of carbon‑intensive sector bonds, representing a small share of the total bond universe. In 2022, green‑labelled bond issuance (flows) reached USD 0.4 trillion, while carbon‑intensive corporate debt security flows were estimated at USD 1.4 trillion, which corresponds to a third of non‑financial debt issued. In terms of outstanding corporate bond stocks, green‑labelled bonds and carbon‑intensive bonds were USD 1.6 trillion and USD 1.7 trillion in 2023, respectively just above and below 5% of total outstanding corporate bonds.
Corporate loans represent another key blind spot in terms of data on transactions supporting and undermining climate goals. Very partial and inconclusive evidence is available for green‑labelled loans, while even less data was identified for carbon‑intensive loans.
While identifying sovereign bonds that explicitly undermine climate goals is difficult, the scale of green‑labelled sovereign bonds remains small. Green‑labelled bonds issued by the public sector in 2023 were only USD 0.25 trillion, a small share of total sovereign bond issuance.
Climate‑related evidence for financial institutions and portfolios remains limited, despite the involvement in climate coalition of banks with over a third of global banking assets and institutional investors with over three-quarters of global assets under management. Analysis of 1 100 large banks finds that they provided financing (flows) for nearly USD 1 trillion to fossil fuel supply in 2022, while USD 0.7 trillion went to low‑carbon energy supply.
Efforts to generate evidence at the level of financial jurisdictions are ramping up but remain work in progress. Updates to the System of National Accounts intend to include “green” breakdowns for debt securities, loans, equity, and investment fund shares, which would support such efforts, although not in relation to climate‑misaligned finance.
Chapter 2 highlighted remaining challenges and gaps to comprehensively track the alignment of finance with climate policy goals. Acknowledging these challenges and gaps, this chapter compiles a selection of available data points and estimates that provide indications of the scale and share of investments and financing going respectively to activities contributing to or undermining climate goals, with a focus on climate change mitigation. Improvements in the availability, coverage, scale, and granularity of these data points and estimates over time will provide opportunities to develop actual alignment assessments involving a comparison with climate policy goals reference points and benchmarks.
This chapter presents available evidence across different levels of finance, starting with real‑economy investments and considering different layers of the financial system (Figure 3.1). This review focuses primarily on finance issued, underwritten, or held by private actors. It complements the multiple processes that already address the climate alignment of public finance, notably budgetary expenditures (IEA, 2023[1]; IEA, 2023[2]; OECD, 2024[3]) and international development finance (OECD, 2019[4]). In terms of geographical coverage, while tracking real-economy assets and corresponding investments can be contained within national boundaries, other layers typically involve a mixture of domestic and cross‑border flows and stocks of investments and financing. For instance, financial institutions headquartered in a given financial centre will typically invest and hold assets in both that country and other jurisdictions (countries).
Source: Authors.
Within each of these layers, different initiatives and tracking exercises may define activities that contribute to or undermine climate goals slightly differently. In some cases, such estimates are based on categories of activities (projects or assets), technologies, or sub‑sectors classifications. In other cases, finance stocks and flows are labelled as ‘green’ or climate‑related based on voluntary labels or taxonomies providing definitions or guidance. The chapter clarifies where estimates across different parts of finance follow varying definitions or scopes.
Estimates of finance for activities that contribute to or undermine climate objectives may in themselves be partial. For example, while climate finance is relatively well tracked for international public sources and specific sub‑sectors such as renewable energy, significant data gaps remain for domestic public finance and private sources and for sectors that involve smaller‑scale activities (e.g., agriculture) (CPI, 2022[5]). Such gaps are typically even more acute for climate change adaptation than for climate change mitigation, as discussed in Chapter 2, which explains why only a few examples are included in this chapter. More generally, estimates of finance to activities that contribute to or undermine climate objectives tend to be less comprehensive for developing countries and unlisted companies (World Bank Group, IMF and OECD, 2023[6]). Notwithstanding these challenges and gaps, and with the aim to address the broader Article 2.1c goal to make all finance consistent with climate goals, the chapter places available figures in the context of total investments and financing flows and stocks as relevant.
A comprehensive analysis of the degree of (mis)alignment of real‑economy investments does not yet exist, but pilot studies are being conducted at the sectoral level (Micale et al., 2020[7]) and country level (Jachnik and Dobrinevski, 2021[8]). Data points on real‑economy investments contributing to or undermining climate change mitigation goals are mostly found at the sectoral level, and most prominently for the energy sector. In the absence of comprehensive evidence on the climate change mitigation alignment of all real‑economy investments, these estimates can be compared to total real-economy investments, for which gross fixed capital formation1 can be considered as an approximate benchmark for the order of magnitude of total real‑economy investment flows (Jachnik, Mirabile and Dobrinevski, 2019[9]). By nature, gross fixed capital formation and other estimates presented in this section cover real‑economy investments by both private and public actors (Box 3.1).
Estimated real‑economy investments supporting climate change mitigation are growing and were larger than those in fossil fuels in 2022. In 2022, estimates indicate investments sin clean energy represented around USD 1.7 trillion, which is over 6% of total gross fixed capital formation (USD 26.4 trillion) in that year (Figure 3.2). Estimates of investments in fossil fuels add up to USD 1.5 trillion, which is nearly 6% of total gross fixed capital formation in 2022. However, estimates of investments supporting or undermining climate change mitigation differ across assessment sources and their exact scope of analysis and data access. For example, available estimates of investments contributing to climate change mitigation range from USD 1.3 to 1.7 trillion in 2022 (CPI, 2023[10]; BloombergNEF, 2024[11]; IEA, 2024[12]).
Real‑economy investments in activities contributing to climate change mitigation have increased 45% since 2015 (from USD 1.1 trillion in 2015 to USD 1.7 trillion) (Figure 3.2). At the same time, the share of investments going to fossil fuels has reduced from 80 to 60% compared to total investment in fossil fuels and renewable energy (IEA, 2024[12]). These estimates indicate that while the alignment of real‑economy investments with climate change mitigation goals remains limited, it is improving.
Note: GFCF is gross fixed capital formation. Renewable power relates to investments in power generation from renewables. Other clean energy refers to investments in energy efficiency and other end uses, electricity networks, storage, nuclear power generation, and clean fuels. Fossil fuels relates to investments in fossil fuel supply and power generation from coal, oil, and natural gas.
Source: Authors, based on (World Bank, n.d.[13]; IEA, 2024[12]).
Some sectors are shifting their investments towards climate‑aligned activities slower than others. Focussing on capital expenditure by companies2 across sectors provides further sectoral insights for real‑economy investments by private actors. As of 2022, only about 1% of capital expenditure by oil and gas companies globally is going towards low‑carbon activities (Figure 3.3, Panel A). While there is an increase compared to when the Paris Agreement was adopted, it remains a small fraction of total capital expenditure by those companies, and capital expenditure going to fossil fuel supply. Taking the example of green capital expenditure by manufacturing companies in Europe, transport and steel manufacturers have higher green capital expenditure shares than other manufacturing sectors such as chemical and food manufacturers (Figure 3.3, Panel B).
Note: For Panel B, CapEx alignment refers to the share of capital expenditure by companies in a given sector on areas aligned with their own corporate climate transition plans or sustainable finance taxonomy.
Source: Adapted from (IEA, 2023[14]) using S&P Capital IQ data for Panel A and from (CDP & Oliver Wyman, 2024[15]) for Panel B.
Volumes of real‑economy investments in activities supporting and undermining climate change mitigation differ. Looking at total investments across geographies, high‑income countries (85 countries with 39% of the world population) represented 54% of global gross fixed capital formation in 2022, middle‑income countries (105 countries with 49% of the world population) represented 45% and low‑income countries (26 countries with 12% of the world population) represented only 0.4% (Figure 3.4, Panel A). Investments in activities contributing to climate change mitigation can hence be expected to be smaller in, for example, Africa and Eurasia. While all regions have invested more in fossil fuels than renewables between 2015 and 2020, clean energy investments surpassed fossil fuel‑related investments in 2022. For example, Asia Pacific and Europe invested more in clean energy than fossil fuel supply (Figure 3.4, Panel B). At the same time, Asia Pacific also invested the most in fossil fuel supply along with North America.
In the context of geographical disparities, it is important to recognise that the capacities of relatively less developed countries to invest in and finance climate action can be, to various degrees depending on the country, dependent on international climate finance provided and mobilised. This includes international climate finance provided and mobilised in the context of the existing annual USD 100 billion goal under the UNFCCC (which, as per (OECD, 2024[16]), was met for the first time in 2022), and its successor expected to be agreed at COP29 in November 2024 (see for instance (Falduto, Noels and Jachnik, 2024[17]).
Note: Renewable power relates to investments in power generation from renewables. Other clean energy refers to investments in energy efficiency and other end uses, electricity networks, storage, nuclear power generations, and clean fuels. Fossil fuels relates to real‑economy investments in fossil fuel supply and power generation from coal, oil, and natural gas.
Source: Authors based on (World Bank, 2024[18]) for Panel A and (IEA, 2024[12]) for Panel B.
Real‑economy investments (by both private and public actors) in activities supporting climate action have mostly gone towards climate change mitigation, with much lower amounts going to climate change adaptation. In 2022, estimated investments in adaptation were USD 72 billion, up from just USD 42 billion in 2019 (CPI, 2023[10]). The historical focus on climate change mitigation reflects the need to reduce emissions, which would also reduce investments needed for adaptation. However, as mitigation efforts have been insufficient, adaptation investments need to increase, along with embedding resilience in all investments and avoiding investing in mal‑adapted activities, for which there are currently no available estimates. With this in mind, initiatives for tracking and assessment of investments from a climate change resilience perspective need to be intensified, as motivated and detailed in Chapter 2, Section 2.4).
Real‑economy investments are made by both public (e.g., governments, national development banks, multilateral development banks) and private actors (e.g., companies, institutional investors, households). At an aggregate level, most investments are made by private actors, although there are regional differences (Figure 3.5, Panel A).
Connecting estimates of climate‑aligned and ‑misaligned real‑economy investments with actors can be challenging. Data presented in this section does not always allow to distinguish the actor type behind the investments. Available estimates of global real‑economy investments in climate action indicate that public and private actors contribute almost equally to global investment flows (USD 640 and 625 billion respectively in 2021‑22), but acknowledge significant gaps in coverage of, e.g., domestic public finance (CPI, 2023[10]). For investments in renewable energy specifically, private sector accounted for 69% in 2020 and 75% between 2013‑20 cumulatively (IRENA, 2023[19]). However, public actors have played a crucial role in research, development, and demonstration in renewables, for which only 0.3% of investment by private actors in 2023 (IEA, 2024[12]). At the same time, private investment accounts for nearly all investments in research, development, and demonstration in fossil fuels (IEA, 2024[20]) consistent with remaining significant volumes of investments in fossil fuels more generally.
Shares of public and private finance in climate investment flows vary significantly across regions (Figure 3.5, Panel B). While private actors in North America and Europe account for nearly 80%, they only represented just over 10% in Sub‑Saharan Africa in 2021‑22.
Note: Data gaps in Panel B are most pronounced for domestic government expenditure, investments from private sector, and South‑South flows. Regional breakdowns in Panel B are based on official UN country classifications. Both panels as are average for 2021‑2022.
Source: Authors, based on (European Commission, 2024[21]) and (World Bank, 2024[18]) for Panel A, and (CPI, 2023[22]) for Panel B.
The real‑economy investments discussed in Section 3.1 can be financed through a range of financial instruments. Flows and stocks of financial assets are several times larger than flows and stocks of tangible fixed assets, which loosely speaking illustrates the financialisaton of the economy (Jachnik, Mirabile and Dobrinevski, 2019[9]). A significant amount of financial intermediation and secondary financial market activity is linked, on average, to each tangible fixed asset. In addition, the valuation of financial assets is influenced by secondary markets and their supply and demand dynamics.
Analysis of the financial sector requires looking into the specific types of financial instruments and asset classes that characterise the portfolios of investors and financial institutions. These include listed equity, unlisted equity, corporate debt securities (including corporate bonds), loans, sovereign bonds, real estate, and infrastructure (noting that investments in real estate and infrastructure typically take the form of equity, bonds, or other debt‑related instruments).
Assessing progress towards the climate alignment of stocks (holdings) and flows (issuance) across different asset classes is also crucial as they tend to serve different purposes and complement each other. For example, primary equity markets enable early‑stage companies to capitalise on future growth of climate solutions, while debt provides the majority of financing for established companies, such as in traditionally emissions‑intensive sectors (Wilson and Caldecott, 2023[23]). Taking the US as an example, corporate bond issuance was ten times the issuance of equities in 2023 (SIFMA, 2024[24]). At the same time, the outstanding value of equities (which varies with market valuations) was over four times that of bonds. Similar trends can be observed for global finance flows in energy sectors (Figure 3.6).
Source: Adapted from (Wilson and Caldecott, 2023[23]) based on LSEG data.
While all asset classes should be assessed to analyse progress towards Article 2.1c of the Paris Agreement in a comprehensive, as highlighted in Section 2.2 of Chapter 2, climate change‑related assessment methodologies and data availability have developed more for some asset classes than others. The data points presented in this chapter for each asset class in relation to activities that contribute to or undermine climate goals also reflect such varying data availability. This in turn creates a risk that financing misaligned with climate objectives may be hidden in asset classes that are less well tracked.
3.2.1. Corporate equity
Available estimates find stocks of listed equity in low‑carbon energy remain much lower than those in fossil fuel supply and total listed corporate equity (Figure 3.7, Panel A). In 2022, listed corporate equity in low‑carbon energy supply was estimated at USD 3.7 trillion and USD 9.6 trillion in fossil fuel supply (BloombergNEF, 2024[25]). This represents, respectively, 4% and 10% of global equity valuation, which was at USD 101 trillion in 2022 (SIFMA, 2023[26]; WFE, n.d.[27]). Between 2021 and 2023, stocks of listed equity in fossil fuel supply have increased in value, while those in low‑carbon energy decreased slightly (Figure 3.7, Panel B). Available estimates of the degree to which listed equity finances activities currently contributing to or undermining climate change mitigation are incomplete (Figure 3.7, Panel A).
Note: Low‑carbon energy supply includes stocks for low‑carbon energy production sources (renewables, storage, biofuels and nuclear) and facilities manufacturing low‑carbon energy equipment (equipment and services, such as modules, turbines, and components). Fossil fuel energy supply includes stocks for fossil‑fuel‑based sources of energy production (coal, oil and gas, and utilities’ fossil‑fuel power generation for electricity and heating/cooling, transportation, and refining businesses) and equipment to support such production (generators, boilers, parts and services).
Source: Authors, based on BloombergNEF and (SIFMA, 2023[26]) for Panel A and BloombergNEF for Panel B.
Listed corporate equity is one of a few asset classes for which actual climate‑alignment assessments (i.e., analysis of finance against a reference point relating to climate policy goals, as outlined in Chapter 2) are available. Currently available alignment assessments, which consider current and targeted climate change mitigation performance based on different methodologies and indicators, converge on an aggregate misalignment and continued high levels of missing disclosure but vary significantly when looking at individual assets (as further discussed in Subsection 2.2.2 of Chapter 2) (Figure 3.7).
Current climate alignment assessments of listed corporate equity highlight a continued high degree of misalignment with long‑term climate goals (Figure 3.8, Panel A). Where Figure 3.7 collects estimates of listed equity in activities with currently low‑ or high‑emissions levels, Figure 3.8 shows a full climate alignment assessments based on current and targeted emissions levels. Such a focus on emissions targets allows for an assessment of activities that are in transition. However, it comes with methodological challenges, as explained in Chapter 2, as exemplified by the different aggregate results across providers. While Providers 1 and 2 assess almost the entire universe of listed equity, Provider 3 has a smaller sample size. The results of Provider 3 are, therefore, not as directly comparable with those the other providers. Climate‑alignment results can also be shown by sector, showing some degree of agreement of less alignment of listed equity in the energy and materials sectors (Figure 3.8, Panel B).
Note: Both panels include latest available alignment assessments as of August 2024 across three providers of alignment assessments. Such alignment assessments assess long-term climate targets as explained in Chapter 2. Sample sizes differ across providers, with around 13 000 companies in the sample universe of providers 1 (P1) and 2 (P2) and just over 1 000 companies for Provider 3.
Source: Authors, based on MSCI, S&P, and TPI data.
Private corporate equity remains a key blind spot, with very limited insights into how much it finances activities that support or undermine climate goals (Figure 3.9). While it is smaller in total size than listed equity, it is a growing asset class that plays a key role in financing real-economy investments. Total private equity was estimated at USD 8.25 trillion in 2023, up from USD 7.62 trillion in 2022 (Preqin, 2024[28]; McKinsey & Company, 2024[29]; Bain & Company, 2024[30]; McKinsey & Company, 2023[31]). Estimates of private equity contributing to climate change mitigation are scarce. Private equity or venture capital transactions in the global renewable electricity sector were estimated to have reached USD 0.014 trillion in 2022 (S&P, 2023[32]). Additionally, global private deal volumes in climate technologies reached USD 0.20 trillion in the same year (McKinsey & Company, 2023[31]). At the same time, there are no global estimates of private equity undermining climate goals. Moreover, some evidence suggests private equity continues to go more into fossil fuels than renewables (Private Equity Stakeholder Project, 2021[33]). Overall, the degree of current climate alignment remains unknown for 98% of private equity globally.
While there is no comprehensive assessment of differences of climate alignment across asset classes, examples across jurisdictions illustrate some degree of shifting financing from listed to unlisted companies in climate‑relevant sectors. For example, listed domestic companies reduced their ownership of US electric power from 70% to 54% of total generation between 2005 and 2020, while private equity increased their ownership from 4% to 13% (Andonov and Rauh, 2024[34]). However, generally the decommissioning of coal‑based power plants and scaling up of renewables has not differed significantly between those actors. Another example is coal power plants in Europe, where a large decline in public equity ownership was met by a sharp increase in private firms' ownership (Darmouni and Zhang, 2024[35]). This decline was not driven by public equity investors selling plants, but by their scaling down of plants quickly.
Note: Climate technology covers low-carbon technologies in a range of sectors including clean energy, low-carbon mobility, or sustainable food & agriculture.
Source: Authors, based on (S&P, 2023[32]) and (McKinsey & Company, 2023[31]) based on Preqin and PitchBook data.
3.2.2. Corporate debt
Moving from corporate equity to corporate debt securities, different sources provide partial estimates of low-GHG and GHG-intensive stocks and flows. Such efforts are focussed mostly on corporate bonds for which data is more widely available. Within this asset class, some assets are explicitly labelled as “green” based on existing voluntary labels or taxonomies in jurisdictions where those exist (as discussed in Subsection 4.2.1), which can serve as an approximation of finance supporting climate change mitigation goals. However, it should be noted that “green” labels cover a variety of activities beyond climate action, such as biodiversity conservation and wastewater management (OECD, 2024[36]), and further work needs to analyse their real decarbonisation impacts (Lam and Wurgler, 2024[37]). Other tracking exercises for corporate debt have considered the carbon‑intensity of the sector to which issuers belong and the use of proceeds of the securities. Such estimates are not yet available for all types of debt securities, nor do they provide a comprehensive overview of the degree of (mis)alignment of debt stocks and flows.
Stocks of green corporate bonds are lower than of carbon‑intensive corporate bonds and represent a small share of total bonds. At the end of 2023, global outstanding corporate bond debt reached USD 34 trillion, up from around USD 25 trillion a decade earlier (OECD, 2024[36]). In the same year, outstanding green‑labelled corporate bonds amounted to USD 1.6 trillion, representing just under 5% of the corporate bond universe (Figure 3.10, Panel A). Available estimates of outstanding carbon‑intensive corporate bonds find a total of USD 1.7 trillion outstanding as of June 2023 (LSEG, 2024[38]), representing just over 5% of the corporate bond universe (Figure 3.10, Panel A).
Considering total outstanding carbon‑intensive corporate debt securities more broadly, including bonds, notes, commercial paper, and other corporate debt securities, points to large amounts flowing to GHG‑intensive sectors. In 2023, outstanding carbon‑intensive corporate debt securities add up to USD 5.5 trillion (LSEG, 2024[38]). Currently, 38% of that debt is owed by private companies, 35% by listed companies, and 27% by state‑owned enterprises, highlighting the importance of tracking financing of non‑listed companies, as already discussed in the previous subsection on private equity. Considering all corporate debt issued between 2000 and 2023 (both currently active and inactive debt), carbon‑intensive debt securities represented 35% of total corporate debt securities between that period (LSEG, 2024[38]).
Green‑labelled bond issuance (flows) is, however, on a rising trend, increasing from USD 0.02 trillion issued in 2015 to USD 0.36 trillion in 2023 (Figure 3.10, Panel B). Such issuance is split almost equally between non‑financial and financial corporates. Green‑labelled corporate bonds are mostly financing projects in alternative energy, energy efficiency and green buildings (Mastouri, Shah and Pandey, 2023[39]). Green‑labelled corporate bonds represented on average 92% of sustainable corporate bonds prior to 2020 (OECD, 2024[36]).
Issuance of debt securities (flows) by carbon‑intensive non‑financial corporate sectors, on the other hand, has remained a significant part of corporate debt security flows, staying around USD 1.38 trillion issued in 2022, which corresponds to about a third of corporate debt issued in 2022 (LSEG, 2024[38]). While most of these debt securities are issued in advanced countries, emerging and developing countries are representing an increasing share. Between 2000 and 2022, the share of carbon‑intensive debt volumes issued from emerging and developing countries increased from 4% to 41% (LSEG, 2024[38]).
It is important to note that a range of companies in carbon‑intensive sectors have started to issue green‑labelled bonds to support their transition to net‑zero emissions (Figure 3.10, Panel C). An estimated 7% of new debt securities issued by carbon‑intensive sectors in 2022 were structured as green‑labelled bonds. An estimated additional 1% related bonds not labelled as green but financing low‑carbon activities such as electric vehicles production and renewable energy generation (LSEG, 2024[38]). These green‑labelled and ‘de facto green’ bonds were mainly concentrated in electric utilities and car manufacturing sectors.
Although corporate loans are a relatively big asset class and are critical to financing activities of both large and small companies, data and estimates are scarce, whether relating to the total size of the asset class or volumes relating to activities contributing or undermining climate goals. In 2021, fossil fuel sectors financed themselves 53% through loans, 43% through bonds, and only 4% through equities. On the other hand, green‑labelled loan flows remain low in absolute terms, despite a significant relative increase over the past years. Issuance of green loans moved from USD 0.02 trillion in 2020 to USD 0.20 trillion in 2023 (Environmental Finance, n.d.[40]). Green loans are more concentrated in the energy and utilities sectors than green bonds, with 84% of green loans issued by those sectors (Dursun-de Neef, Ongena and Tsonkova, 2023[41]).
Note: Green-labelled bonds are based on use of proceeds going towards projects in renewable energy, clean transportation, biodiversity conservation, and wastewater management. Carbon-intensive sectors are identified based on granular sector activities identified as carbon intensive within the energy, materials, industrial and transport sectors, based on LSEG’s Reference data Business Classification. Panel C includes active and inactive corporate debt issued between 2000 and June 2023.
Source: Authors, based on (LSEG, 2024[38]; OECD, 2024[36]) for Panel A, (OECD, 2024[36]) for Panel B, and (LSEG, 2024[38]) for Panel C.
3.2.3. Sovereign bonds
Moving from more corporate‑related asset classes to government‑related financial assets, global outstanding sovereign bonds are valued at USD 64 trillion, double the stock of corporate bonds (OECD, 2024[36]). As discussed in Chapter 2, different approaches to assess climate‑alignment are needed than for corporates and methodological developments are underway. In the meantime, while estimates of sovereign bonds that explicitly undermine climate goals are missing, estimates of sovereign bonds explicitly supporting climate goals can be based on government‑issued bonds labelled as green.
Note: Green-labelled bonds are based on use of proceeds going towards projects in renewable energy, clean transportation, biodiversity conservation, and wastewater management.
Source: Authors, based on (OECD, 2024[36]) and (Climate Bonds Initiative, 2024[42]).
Although sovereign bonds are a big asset class, volumes of green‑labelled sovereign bonds are small. Outstanding green-labelled bonds (stocks) by official actors (including sovereigns, local and government‑backed entities, as well as multilateral institutions) in 2023 were estimated at USD 1.29 trillion, out of which USD 0.39 trillion in green sovereign bonds (Figure 3.11, Panel A). The volume of annual green-labelled bond issuances (flows) by the public sector increased significantly between 2014 and 2021, but then plateaued around USD 0.25 trillion in 2023 (Figure 3.11, Panel B).
The climate alignment of finance can next be assessed at the level of investors and financial institutions, and the extent to which they are aligning their portfolios with climate policy goals. Such aggregate assessments can be highly complex as investors and financial institutions can have diversified portfolio structures across asset classes, including but not limited to the ones for which estimates are presented in the previous section. Analysing such structures thus requires both detailed, often proprietary data, as well as methodological assumptions to aggregate results across business lines and assets, which in turn can lead to more opaque and less robust results that could notably hide, within aggregate portfolio assessments, large amounts of financing continuing to go to climate‑misaligned activities (see Chapter 2, Section 2.3). However, as done in other sections of this chapter, estimates for some financial sector actors’ investments in activities that contribute to or undermine climate goals can be collected.
Financial sector actors can be grouped in different ways. In responding to climate change, the financial sector has come together through coalitions by actor type, notably alliances under the Glasgow Financial Alliance for Net Zero (GFANZ), which includes the following sub‑coalitions: the Net Zero Asset Managers Initiative (NZAM), the Net‑Zero Asset Owner Alliance (NZAOA), and the Net‑Zero Banking Alliance (NZBA). As of 2024, such initiatives covered just over 40% of assets under management in the banking sector, and nearly 70% of assets under management by investors under the largest coalition (Figure 3.12). As highlighted in Figure 3.12, there are further voluntary initiatives that gather investors for the purpose of stimulating climate action, such as the Paris Aligned Asset Owners (PAAO) and Climate Action 100+.
Note: Total assets under management values for banking and investors are for 2023. Assets under management of initiatives are the latest values available as of August 2024. NZBA is the Net‑Zero Banking Alliance. CA100+ is Climate Action 100+. NZAM is the Net Zero Asset Managers Initiative. PAII is the Paris Aligned Asset Owners. NZAOA is the Net‑Zero Asset Owner Alliance.
Source: Authors, updated from (UNFCCC SCF, 2022[43]; UNFCCC, 2022[44]).
While adherence to such coalitions typically reflects investors’ and financial institutions’ commitments to climate actions, they do not represent a measure of contribution to climate goals, which requires looking at holdings (stocks) and new investment (flows), which the remainder of this section partly does, as well as actions such as engagement, managed divestment and exclusion, and portfolio construction practices, which are addressed in Section 4.3 of Chapter 4.
3.3.1. Banks
Bank‑facilitated financing (which includes both direct lending and underwriting) continues to flow more towards fossil fuel than low‑carbon energy supply. In 2022, total assets of commercial banks worldwide (stocks) added up to USD 183 trillion (FSB, 2023[45]). Analysis of 1 100 large banks finds that they provided financing (flows) for nearly USD 1 trillion to fossil fuel supply in 2022, while USD 0.7 trillion went to low‑carbon energy supply (Figure 3.13, Panel A). Compared to 2021, the ratio of financing to low‑carbon energy compared to fossil fuel energy remained stable, in the context of an overall decrease in financing for energy supply activities. Besides direct financing, banks play a critical role in facilitating large financing transactions via underwriting, a process through which, on behalf of a client, they raise capital from investors in the form of debt or equity. In 2022, banks that are part of the NZBA collectively underwrote USD 0.52 trillion of fossil fuel supply financing (representing 54% of all fossil‑fuel financing), compared to USD 0.46 trillion of low‑carbon energy supply financing (representing 63% of all low‑carbon energy supply financing) (BloombergNEF, 2023[46]).
In terms of geographical differences, volumes of bank‑facilitated financing were higher in Europe and Latin America than in North America and China, where financing volumes to fossil fuel energy supply are also the largest. In 2022, bank‑facilitated financing to low‑carbon energy, by issuing region of risk, was USD 0.208 trillion in Europe, followed by USD 0.207 trillion in North America and USD 0.166 trillion in China (Figure 3.13, Panel B). On the other hand, bank‑facilitated financing to fossil fuel supply reached USD 0.406 trillion and USD 0.298 trillion in North America and China had the highest respectively, whereas in Europe, financing to fossil fuel supply only represented a third of low‑carbon energy financing. Across regions, bank‑facilitated financing for low‑carbon energy supply exceeded that for fossil fuel energy supply only in Europe and Latin America, which have a low‑carbon to fossil fuel energy supply financing ratio of 2.81 and 1.05 respectively. These trends are generally consistent when considering regions based on bank headquarters locations (BloombergNEF, 2023[46]).
Note: Both panels include financing through equity, bonds, loans, project finance and tax equity by 1 100 large banks. In Panel B, the location of the capital raising entities is defined by the region of risk. In Panel B, LC is short for low‑carbon energy supply financing, and FF for fossil fuel energy supply financing by banks. Low‑carbon energy supply includes financing related to low‑carbon sources of energy production (including renewables, storage, biofuels and nuclear) and the development of plants/facilities manufacturing low‑carbon energy equipment (including equipment and services, such as modules, turbines, and components). Fossil fuel energy supply includes financing related to fossil‑fuel‑based sources of energy production (including coal, oil and gas, and utilities’ fossil‑fuel power generation for electricity and heating/cooling, as well as transportation and refining businesses) and the equipment used to support power generation from fossil‑fuel‑based sources (including equipment, parts and services, such as generators and boilers).
Source: (BloombergNEF, 2023[46]).
3.3.2. Institutional investors
Institutional investors are a diverse set of financial sector actors, including pension funds, sovereign wealth funds, insurance companies, asset managers, endowments among others. Different tracking exercises may focus on different actors or the range of different assets they hold. Currently, however, only partial or anecdotal estimates are available across some actors, where some point estimates do not necessarily get updated in more recent years. Hence, the data points presented below rely on examples for assets under management by pension funds, asset managers, and investment funds, as well as infrastructure investments across institutional investors.
Taking the example of pension funds, several earlier studies highlighted historically significant holdings in fossil fuel sectors, but more recent estimates are not yet available. For example, a study dating back to 2017 based on 2015 data estimated that 7% of the equity portion of pension funds in Europe was in fossil fuels (Battiston et al., 2017[47]). In contrast, another study from 2018 found that only 1% of the assets managed by the world’s largest 100 pension funds were invested in low‑carbon solutions (ShareAction, 2018[48]). More recently, an international survey of 75 large pension funds and 13 sovereign wealth funds, which in total managed USD 10.8 trillion (USD 4 trillion and USD 6.8 trillion respectively) in assets in 2021, found that nearly all funds had less than 10% of assets in green assets (OECD, 2022[49]).
Looking at asset managers, 55 having disclosed to CDP in 2023 reported USD 1.72 trillion in assets under management going towards fossil fuel activities (CDP, 2023[50]). Other analysis finds that the largest 40 asset managers each have around 2% of their assets under management in oil and gas companies (Carbon Tracker, 2023[51]). Few estimates are available on assets under management going towards activities contributing to climate goals.
Investment funds’ holdings (stocks) show that only a very limited share of their total equity and bond investments goes to companies involved in carbon solutions (OECD, 2023[52]). Considering the broader category of sustainable funds for which data is more readily available, assets under management by investment funds in sustainable funds only accounted for 6.2% of total assets under management by investment funds in 2022 (Figure 3.14, Panel A). However, assets under management by investment funds in sustainable funds increased by 600% over the last decade, highlighting the potential capital to be leveraged. Only 6% of sustainable funds went to emerging markets, which is less than the overall average of 11% across all types of funds held by investment funds (Lepers and De Crescenzio, 2024[53]). Focusing specifically on “green” assets, defined as securities of companies involved in carbon solutions (renewable energy, transport, buildings, efficiency), they amount to USD 3.8 trillion invested globally by investment funds as of 2022, representing 8% of total global assets under management (OECD, 2023[52]). Zooming in on funds specialised in green (defined as funds with more than 25% of their portfolio invested in green assets), their green investments are heavily skewed towards the US (almost 70%). China is by far the next largest investment destination. Overall, emerging markets represent only 13.6% of total green investment by ‘green’ funds in the sample, and less than 1% excluding China (Figure 3.14, Panel B).
Note: For Panel A, the sustainable classification is based on name and prospectus. For Panel B, “Green” funds are defined as funds with more than 25% of green assets, where “green” assets are defined using the metric by Morningstar “% of the revenue from involvement in carbon solutions”, which captures the key sectors involved in climate transition, including renewable energy, transport, buildings, and energy efficiency. EM refers to emerging markets.
Source: (OECD, 2023[52]).
Taking the example of infrastructure, a relatively smaller asset class within institutional investors’ portfolios, in 2020, they held an estimated USD 1.04 trillion worth of infrastructure assets, of which USD only 0.3 trillion were identified as investments in green infrastructure (OECD, 2020[54]). Asset owners represented most of these investments through unlisted funds and project‑level equity or debt, while asset managers predominantly used securitised products. Most of these investments were made within the jurisdictions of the investors, with very limited shares crossing borders, consistent with more general home bias documented in white and grey literature institutional investors (OECD, 2024[55]).
Assessments at the level of jurisdictions can bring together perspectives from the real economy, financial assets, and financial institutions addressed in the three previous sections. As such, while the financial sector is transnational, available evidence of climate alignment or misalignment at the level of financial jurisdictions can inform policymakers about actions they can undertake to influence investors and financial institutions incorporated within their jurisdictions towards enhancing the degree of climate alignment.
The System of National Accounts (SNA) is the international standard for compiling national accounts, which are a key source of official macroeconomic statistics. Countries use the SNA framework to collect and collate data to produce sets of accounts, including national financial accounts and balance sheets, which record transactions and balances (financial assets and liabilities) between resident institutional units and between resident institutional units and the rest of the world. The transactions and balances are organised according to financial instrument categories, including debt securities, loans, equity, and investment fund shares (discussed in Sections 3.2 and 3.3), as well as currency and deposits, financial derivatives and employee stock options, and other accounts payable/receivable (UN, EC, OECD, IMF & World Bank, 2009[56]). Sub‑categories exist for each financial instrument, which for debt, securities and loans include whether they are short‑ or long‑term, and for equities whether they are listed or unlisted. Financial transactions and balances are recorded for different sectors of the economy, notably non‑financial corporates, financial corporates, general government, and households.
The financial accounts and balance sheets in the 2008 SNA do not include any subcategory or dimension relating to sustainable, green, or climate‑related transactions. However, the 2025 SNA and its sister publication, the seventh Balance of Payments Manual (BPM7), currently under development, aim to provide expanded information on the interplay between the economy and the environment, including through statistics related to sustainable finance that quantify funding activities which actively contribute to green and climate outcomes, notably the transition to low‑carbon economies. Meanwhile, the G20 Data Gaps Initiative (DGI), launched in 2009 to close the policy‑relevant data gaps, entered its third phase in 2022. As part of its work on climate change‑related data gaps, the third DGI put out a recommendation for improved data on investments and sources of finance for green projects and activities that can mitigate climate change and help countries adapt to its implications (G20 DGI, n.d.[57]).
Against this backdrop, acknowledging the growth in taxonomies, labelling and certification schemes, as well as further working definitions and market practices, a 2025 SNA and BPM7 issues note proposes the creation of ESG and, as a subset of that, ”green” breakdowns for debt securities, loans, equity, and investment fund shares (Barahona, Girón and Tebrake, 2024[58]), to be compiled as part of countries’ financial accounts and balance sheets, balance of payments and international investment positions. Such developments have the potential to result in a significant improvement in terms of scope and coverage of evidence compared to currently available estimates as presented in this chapter. Notably, under the third DGI, most G20 countries as well as several additional jurisdictions, have made self‑commitments to start transmitting data for “green debt securities” by the end of 2025 or 2027 (G20 DGI, n.d.[59]).
While data on these green financial instruments in the context of the System of National Accounts will only be compiled from 2025, initiatives across jurisdictions provide preliminary information for these instruments. In particular, several central banks have collected and aggregated data on green finance, so far mostly focussed on green bonds. Across a selection of jurisdictions, estimates show an increasing share of green bonds compared to total bond issuance in those jurisdictions. In the Eurozone, for example, green bond issuance accounted for 6% of total bond issuances in 2023 (
Figure 3.15, Panel A). Over the same period, data by the Reserve Bank of Australia (RBA) shows that green bonds accounted for only 0.6% of the bond universe in Australia, up from 0.1% in 2015 (
Figure 3.15, Panel B). Use of proceeds from Australian green bonds, issued between 2014 and 2023, mostly financed clean transport projects, followed by energy efficiency and green construction/buildings (Armour, Hunt and Lwin, 2023[60])).
In contrast to green bonds, initiatives to estimate green loans, green equity, and green investment fund shares are much more limited across jurisdictions. These efforts are not yet done uniformly across jurisdictions and financial asset classes, and current data points may follow different scopes, approaches, and metrics, as well as have different data limitations. Even green bonds face the lack of a global uniform and clear definition, as they are often identified based on a range of labelling schemes that rely on information relating to the use of proceeds. Hence, only relatively anecdotal evidence was found based on what different central banks have published so far.
Data and estimates at the level of jurisdictions of the size of finance undermining climate goals are even less available. Some initiatives do assess exposure of financial portfolios to carbon‑intensive sectors. Some central banks publish such information in the context of financial risk analysis, including on the effect of climate policy and different transition scenarios on financial institutions’ equity valuations (e.g., (Bank of Canada, 2021[61])) and bank losses (e.g., (Bank of England, 2022[62])). Overall, the challenge remains that comparisons across jurisdictions are limited as different scopes, metrics, and approaches are used.
Note: Values for 2023 are preliminary, not yet covering the fourth quarter for the Eurozone and not yet covering the second half for Australia.
Source: Authors from (ECB, 2024[63]; Reserve Bank of Australia, 2023[64]).
In the limited jurisdictions for which initial evidence was found, estimates of both low‑carbon and carbon‑intensive activities in equity and bond portfolios indicate continuing higher stocks in carbon‑intensive activities. For example, in Switzerland, as of 2022, equity stocks in low‑carbon activities and carbon‑intensive activities in selected sectors were estimated at 3% and 5% respectively, while the equivalent figures for bonds were 2.5% and 5% respectively (Figure 3.16, Panels A and B). Equity portfolios have a larger share in the power sector, while bond portfolios have a larger share in fossil fuel supply. Low‑carbon power accounts for sizeable proportions of both equity and bond portfolio exposures, though bond portfolios have minimal exposure to low‑carbon automotives. Since 2020, fossil fuel shares in portfolios (stocks) held across Swiss financial institutions have fallen, decreasing from 2‑4% to 1% for equities and from 3‑5% to 3% in bonds (PACTA, 2022[65]).
At the level of financial jurisdictions, estimates of low‑carbon and carbon‑intensive activities across asset classes show some variance across types of financial institutions. Continuing the example for Switzerland, banks tend to hold more carbon‑intensive automotive equities, while asset managers have the largest holdings of low‑carbon power across equities and bonds (Figure 3.16, Panels A and B). In Colombia, for example, insurers have equity and bond portfolio exposure to fossil fuel extraction of 3% and 5% respectively – double that of insurers in Switzerland (PACTA, 2023[66]). Notably, bond portfolio exposure to hydropower is almost 10% among Colombian insurers and 6% for Peruvian pension funds – both figures substantially above the global market. In Peru, equity exposures to fossil fuel extraction and high‑carbon power sectors are only a half and a third respectively, compared to the global market (PACTA, 2023[67]).
Zooming in on bank portfolios, initial sample estimates at the level of financial jurisdictions find significant degrees of misalignment. In the Eurozone, the credit portfolios of 90% of banks, out of 95 included in the sample, were misaligned with the benchmark decarbonisation scenario in 2022. With regards to sectoral exposures, euro area banks have the highest credit exposures to the power and automotive sectors, which are also the most misaligned (Figure 3.16, Panel C). Conversely, the steel sector had the largest number of aligned banks in the study. There is also significant disparity within sectors, where, for example, euro area automotives showed an accelerated shift towards electric vehicles and phasing out of internal combustion engine cars (ECB, 2024[68])). Another example from Korea finds bank holdings of loans, bonds, and stocks in 2021 comprised of 16.5% exposure to carbon‑intensive sectors (Bank of Korea, 2021[69]). Within the banking industry, specialised banks had the largest exposure to carbon‑intensive sectors. In contrast, commercial banks had the smallest exposure (Figure 3.16, Panel D). Across all bank types, portfolio investments are concentrated in sectors with a medium level of carbon intensity.
While data and estimates on low‑carbon and carbon‑intensive finance at the level of financial centres remain limited, the case studies and trial data presented here can be complemented with analysis of climate‑related financial sector policies in jurisdictions. Analytical efforts are underway to analyse this for some jurisdictions (e.g., (Hoffmann et al., 2022[70])). Such climate‑related financial sector policies are discussed more broadly in the next chapter.
Note: For Panels A, B, and C, production data is collected at the physical asset level and consolidated up the corporate ownership tree, from subsidiaries to parent companies. In Panel C, the net alignment is computed using the IEA NZE 2050 decarbonisation pathway. Net alignment higher than 20% is reduced to 20%, and net alignment lower than ‑100% is raised to ‑100% for visualisation purposes.
Source: (PACTA, 2022[65]; ECB, 2024[68]; Bank of Korea, 2021[69]). PACTA analysis is based on data from Asset Impact.
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← 1. Gross fixed capital formation (GFCF), also called "investment", is defined as the acquisition of produced assets by companies, governments, and households (including purchases of second-hand assets), and the production of such assets by producers for their own use, minus disposals (OECD, n.d.[71]). GFCF also covers intangible assets, which represents 1% to 30% of the total depending on the country but does not cover a large share of household spending on equipment (Jachnik, Mirabile and Dobrinevski, 2019[9]).
← 2. Companies represented 60.4% of gross fixed capital formation across OECD countries in 2022, while governments represented 15.9% and households 23.6% (OECD, 2024[72]).