At the halfway mark of 2025, the landscape of climate and transition finance presents a complex mix of momentum, hesitation, and urgent recalibration. The numbers tell a powerful story: according to the International Energy Agency (IEA), global investments in clean energy this year are projected to reach a staggering $2.2 trillion, more than double the $1.1 trillion expected to be spent on coal, oil, and gas combined. Electricity-related spending alone is poised to top $1.5 trillion, a clear signal that the global energy transition is underway.
But this is only part of the story. Even as capital floods into renewables, grid modernization, storage, and nuclear, fossil fuel financing remains stubbornly resilient. Major economies, particularly in Asia, continue to approve new coal projects and expand LNG infrastructure. Meanwhile, rising energy demand, exacerbated by the AI boom and data center construction has led to forecasts that even green technologies will be supplemented by fossil-based backup power.
So while headlines focus on soaring green investment, the real story is more nuanced, the transition is gaining capital but not yet displacing carbon at the required scale or speed.
Transition Finance: Caught Between Rhetoric and Reality
If climate finance reflects ambition, transition finance is where ambition meets reality. Recent findings from South Pole’s 2025 Net Zero Report offer a revealing snapshot of where the financial sector stands. While 44% of surveyed institutions plan to increase their green asset exposure, 72% still expect to maintain fossil fuel holdings through at least the next decade. Furthermore, 80% of asset managers say they prioritize companies with “credible” decarbonization strategies but only 12% of companies are currently aligned with 1.5°C scenarios.
The biggest bottlenecks? Regulatory uncertainty and a lack of clear definitions for what constitutes a “transition investment.” The unclear rules and taxonomies making it difficult to assess or justify investments in decarbonizing hard-to-abate sectors like steel, cement, aviation, and shipping.
This limbo between commitment and execution continues to slow down much-needed flows into transitional technologies hydrogen, CCUS, bio-based materials, and green industrial processes.
Policy Frameworks: A Tale of Two Worlds
Geopolitics is increasingly shaping the tempo of climate finance. In the United States, political backlash against climate spending has resulted in significant cuts to international climate pledges. On the policy front, the outlook is fragmented. Although the IEA report signals first-ever fossil fuel investment decline (excluding COVID years), driven by a 6% drop in upstream oil due to softening prices,more than $18 billion in proposed funding, ranging from contributions to the UN Green Climate Fund to bilateral support for vulnerable nations has been rolled back or frozen in Congress.
In stark contrast, the European Union has doubled down. Its recently approved “Omnibus Package” simplifies sustainability disclosure rules under the CSRD and updates the EU taxonomy to better account for transition and enabling activities. The EU’s regulatory clarity and investor guidance are fostering stronger flows into low-carbon industries across the bloc, though critics still note challenges in implementation and enforcement.
This divergence means that investors and institutions operating globally must now adopt region-specific climate finance strategies, tuning to local policy signals, incentive schemes, and reporting requirements.
After COP29: Progress or Plateau?
Held in Baku, COP29 produced a key financial milestone: global agreement on a new collective goal of $300 billion per year in climate finance by 2035, a tripling of previous commitments. Yet this figure still falls far short of the estimated $2.7 trillion needed annually for developing countries to meet Paris-aligned targets.
What’s more promising is the development of the “Baku to Belém Roadmap,” an initiative that sets out a framework to ramp up annual finance to $1.3 trillion by 2035. This includes operationalizing Article 6.4 of the Paris Agreement, which opens the door for more robust and transparent international carbon markets—a long-awaited development that could bring credibility and capital to cross-border climate projects.
Looking ahead to COP30 in Brazil, expectations are high. One of the most closely watched proposals is the Tropical Forest Forever Facility (TFFF), a proposed $125 billion blended-finance mechanism designed to reward tropical nations for forest preservation. If realized, it could become one of the largest nature-based finance platforms globally, catalyzing similar models across the Global South.
ASEAN in Focus: Financing Ambition at Scale
In Southeast Asia, where the stakes are particularly high, transition finance is slowly gathering pace. According to the ADB SEADS, the region requires at least $190 billion in concessional finance annually between 2026 and 2030 to remain aligned with net-zero pathways.
Indonesia offers a vivid case study. Despite allocating IDR 702.9 trillion (~US$46.9 billion) to climate finance from 2018 to 2023, this only covers 16.4% of the funding needed to meet its Nationally Determined Contributions (NDCs). However, promising developments are underway. Cross-border solar export deals, such as the Indonesia–Singapore floating solar project, are attracting international capital. Regional initiatives like Singapore’s FAST-P Fund, which pools public-private investments into sustainable infrastructure, represent important vehicles to de-risk early projects and crowd in institutional investors.
The challenge remains one of scale and pipeline: developing a consistent, bankable supply of climate-aligned investments that can absorb capital effectively and deliver real emissions reductions.
A Turning Point Demanding Strategic Action
As we cross the midpoint of 2025, climate and transition financing stands at a critical pivot point. There is unprecedented momentum in clean energy investment, growing innovation in blended finance, and fresh ambition from global frameworks. But the path forward remains uneven, slowed by political fragmentation, underfunded adaptation, and a lingering dependence on fossil fuels.
For investors and financial institutions, the second half of 2025 presents a window of both risk and opportunity. Capital allocation decisions will increasingly hinge on policy clarity, the rise of carbon markets under Article 6, and the viability of transition assets across regions.
To succeed in this next chapter, stakeholders must align bold ambition with executional rigor blending visionary policy with practical financing tools. Only then can climate finance truly become the engine of the global net-zero economy.
