The news of the first catastrophic climate tipping point – decline of the coral reefs – paradoxically comes at a time when geopolitical headwinds are casting doubt on the value of climate change mitigation.
While some firms have pulled back from public commitments on tackling the climate crisis, we are now seeing the start of a quieter, more deliberate focus on making sustainability efforts substantive. There is a reason for this. The climate really is changing, and the recent headlines remind us pressingly so.
In UNEP’s Emissions Gap Report released this month, the latest estimates put the world on course for a temperature rise of 2.8°C this century if we maintain current policy for mitigation efforts. Should the latest Nationally Determined Contributions be fully implemented, this could lower the projected temperature warming to 2.3-2.5°C. This is well above the 1.5 degree ambition in the Paris Agreement. The recent Global Tipping Points report suggests that global warming must be reduced to 1.2 degrees ‘as fast as possible’.
We know that financial institutions recognise the need for action. It is clear to them that the climate crisis and energy transition it necessitates will impact how they and their clients do business.
It’s not just about risks, there is a great opportunity – and this is where it gets interesting. In a recent interview, leading British economist Lord Nicholas Stern called investment in climate action “the economic growth story of the 21st century”. We can see this playing out when we look at the pace of development of the renewable energy sector and the huge investment that some of the world’s biggest economies are making to see what is possible.
Despite coal being just over 50 per cent of China’s electricity mix, in 2024, China’s investment into clean energy reached US$940 billion, almost a clean trillion. As a result, China has now installed more solar and wind than the rest of the world combined – leading in the first half of 2025 to a slight decline in fossil fuel use.
Underpinning China’s efforts are its comprehensive green finance policies and regulatory frameworks. These have supported a shift toward more innovation and capital-driven growth and are aligned with China’s broader policy ambitions for a more sustainable, inclusive, and equitable development model.
Ahead of COP30, China shared its updated Nationally Determined Contribution, which includes targets for increasing wind and solar power capacity by six times above its 2020 levels, and for reducing economy-wide greenhouse gas emissions by 7 to 10 per cent from their peak by 2035.
China is not alone. India also grew its renewable energy by more than three times its electricity demand growth in 2024, causing its coal and gas use to fall by 3.1 per cent and 34 per cent respectively. Eighty-three per cent of India’s power sector investment went to clean energy in the same period. Investment in India’s renewable energy sector for the last quarter of that same year totalled over US$4.66 billion, marking a dramatic 91.5 per cent year-on-year increase. Pakistan also saw remarkable deployment in 2024, adding 15 GW of solar capacity to a power grid that is only about twice that size.
In fact, 2025 has been a turning point for global power supply. According to climate thinktank Ember, the world’s wind and solar farms have generated more electricity than coal plants for the first time this year.
The world generated almost a third more solar power in the first half of the year compared with the same period in 2024, meeting 83 per cent of the global increase in electricity demand. Wind power grew by just over 7 per cent.
The result? Renewables have now displaced fossil fuels for the first time. The energy transition is well underway. It will be a bumpy transition, especially with demand growth from AI now surging, but the direction of travel is clear.
Let’s look at what we know. The environment is changing. Countries, regulatory regimes and economies are responding – albeit not all at an even pace. This means that sooner or later, businesses and economies will have to adapt and indeed, many are already doing so. Those that don’t will be left behind.
Financial institutions, meanwhile, continue to play the same important role they always have. The provision of financial services is critical to facilitate the resilience and growth of the real-world economy.
Evolving operations to be more sustainable is not only good business sense, but also a part of prudent risk management and fiduciary duty. Financial institutions are experts at managing risks and taking necessary precautions to protect their own and their clients’ assets – not just for today but to safeguard longer term outcomes.
For a great many, the impacts of climate change already feature in their commercial decisions. You only have to look at the challenges faced by homeowners in trying to insure their properties in areas at risk from the adverse impacts of climate change. Premiums are spiking, and some regions are now being described as uninsurable.
From an investment perspective, pension funds and other longer-term investors are among those at the forefront of considering how climate change affects their portfolios.
Take the example of La Caisse, one of Canada’s largest pension funds. After exiting fossil fuels in 2023, La Caisse recently modelled what its returns would have been had the fund stayed invested in oil and gas. The result: over five years, the annualized return of its approach to the energy transition has reached nearly 12 per cent, compared to the MSCI ACWI Energy index’s position of roughly 8 per cent.
Navigating the energy transition is not about virtue signalling; it’s prudent business sense. Being aware and managing risks opens the door to opportunities today and tomorrow. In the words of Lord Stern, it’s much better to “invest in the technologies of the 21st century” than those from previous eras. The smart money is already planning and investing in the future. Those who don’t, do so at their peril.
Eric Usher is the head of United Nations Environment Programme Finance Initiative (UNEP FI)
