Banks and investors are flipping the script on fossil-fuel and renewable-energy investment in 2025. In a show of independence from Donald Trump, who is urging producers to pump more oil, major financial industry players are cutting their fossil fuel support and ramping up investment in previously out-of-favour renewable-energy companies.
A big indicator of this altered sentiment is the changing fortunes of fossil-fuel and clean-energy exchange-traded funds (ETFs). As of August 15, the total return this year to date for the XOP oil and gas exploration ETF was -2.0% (it holds major positions in Exxon, Chevron and ConocoPhillips). By contrast, the iShares Global Clean Energy ETF (ICLN) returned 19.0% in the same period (First Solar, Vestas Wind and the utility Iberdrola are top holdings). The previous five-year returns were the opposite: 22.9% for XOP and -0.2% for ICLN.
Another significant sign of change comes from the top six United States banks. Financing for oil, gas and coal projects by this group fell to US$73 billion between January 1 and August 1, 25% lower than the same period in 2024, according to Bloomberg. The retreat is surprising since all of these banks recently withdrew from the Net-Zero Banking Alliance and sharply increased fossil fuel financing in 2024.
The last time there was an upswing in renewable-energy stocks and a decline in fossil fuel shares was in 2020, when the COVID crisis drove down oil prices and “Build Back Better” policies and low interest rates created a wave of renewable-energy optimism. This period came to an end with rising interest rates and a delay in U.S. clean energy programs that undermined projects, and the shift in attention to global security with the Ukraine war.
Now, market forces appear to be pushing banks and investors away from fossil fuels despite the politics of the Trump presidency. “These are not small adjustments,” energy consultant Michael Barnard wrote in a recent blog post. “They are meaningful changes in how capital is being allocated, and they are happening in the face of an administration that is telling the same banks to keep the money flowing.”
Reading the short-selling tea leaves
The reversal in fossil fuel funding is not confined to banks and energy stocks. Hedge funds have now shifted from long-term investment in fossil fuels to short-term selling. They are also shifting to long-term holdings in renewable-energy companies.
Most equity hedge funds were deeply invested in oil companies as recently as last summer. Last fall, that changed. Most shifted to short-selling positions on oil stocks in seven of the nine months between October and June, according to Bloomberg. This is a reversal of the situation that prevailed for most of the last four years, when the majority of hedge funds were in oil companies.
In short selling, investors profit on selling borrowed stocks at high prices by buying them back later at a lower price. That means hedge funds are betting that oil company shares will decline.
By contrast, hedge funds are shifting to long-term positions in renewables stocks. The Bloomberg analysis shows that only 3% of hedge funds were short on solar stocks in June, the lowest percentage since April 2021.
Norwegian fund cuts holdings in oil majors
Some pension funds are also reducing their oil industry holdings. Norway’s government pension fund, the largest pension fund in the world, recently trimmed its position in Exxon from 1.46% of the company’s stock to 1.32%. It also cut its holding in Shell from 2.78% to 2.55%.
Banks and investors are responding to a sharp decline in oil prices in 2025, triggered by increased production from the Organization of the Petroleum Exporting Countries (OPEC) and the economic uncertainty of Trump’s global tariffs. Recent peace talks to end the Ukraine war have raised the possibility that Russian oil sanctions could be lifted, also depressing oil prices. Prices have fallen to about US$60 a barrel from US$100 a barrel in early 2022.
But the decline in oil prices is also part of a long-term energy transition. By 2030, oil demand is expected to plateau at 106 million barrels a day, less than the expected global production capacity of 115 million barrels a day, according to the International Energy Agency.
Long-term prospects for renewable-energy companies are looking good as additional generation will be needed for the explosion in data centres prompted by the progress of artificial intelligence, as well as growth in electric vehicles and home heating and industrial electrification. In a sign of this growing interest, Quebec pension manager Caisse de dépôt et placement du Québec bought Innergex Renewable Energy in a $10-billion deal in February.
The energy consulting firm Wood Mackenzie believes there is room for some oil majors to thrive over the long term. This is because companies like Exxon and Chevron can continue to pump their large low-cost reserves even as other oil and gas companies go into decline. “It’s less about growing – although some of that is still to come – and more about demand resilience,” the company said in a blog post.
Barnard says that if demand doesn’t fall as quickly as supply there could be shortages and price spikes. If demand and supply fall simultaneously, oil industry investment will wind down in an orderly way. “Either way, the direction of travel in private finance is set. Capital is leaving fossil fuels and moving toward the technologies and systems that will replace them.”
Barnard says the shift in financial industry support in favour of renewables is an act of “open defiance” of Trump, who wants the oil industry to pump more crude. “Wall Street is ignoring Trump not out of ideology but out of calculation. Banks are reading the market, listening to investors, and planning for a world where fossil fuels are no longer the safest bet.”
Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).
