Bank and fund financing for low carbon energy grew in 2025 but still falls short of net zero pathways

The proportion of investment by banks and funds directed toward low carbon energy relative to fossil fuels grew in 2025, according to new analysis reported by Carbon Pulse. The finding offers a directional signal that capital allocation is shifting, but the same analysis makes clear that the pace of change leaves both banking and fund sectors below the investment levels required to stay on net zero pathways.

For ESG managers and procurement leads working within finance sector value chains, the gap between current flows and what net zero pathways require is the operative number. Reporting frameworks including ESRS E1 and SFDR require financial institutions to disclose alignment with Paris Agreement goals, and data showing persistent shortfalls against benchmark pathways will feed directly into those disclosures. The year on year improvement does not resolve the underlying alignment question.

Sustainability consultants advising banks or asset managers on SFDR principal adverse impact statements and ESRS double materiality assessments will find this data relevant to the transition plan narrative. Regulators across the EU have increasingly expected financial institutions to show not just current portfolio composition but a credible trajectory toward low carbon alignment. A growing share that still lags required levels creates a disclosure tension that compliance teams will need to address explicitly.

For procurement leads at corporates relying on green finance products or sustainability linked loans, the state of bank level financing also shapes the cost and availability of transition capital. If the institutions providing that capital are themselves misaligned with net zero benchmarks, it raises questions about the credibility of sustainability linked financial products tied to those institutions. That is a consideration that is beginning to surface in due diligence conversations.

The trajectory is positive but the absolute position matters more for regulatory purposes than the directional trend. Financial regulators in the EU and UK have been explicit that year on year improvement is not sufficient if the endpoint remains misaligned with 1.5 degree scenarios. Professionals watching this space should treat the 2025 data as evidence of movement rather than evidence of sufficiency.