“For the first time in our history, every Canadian will hold a direct stake in what’s built,” he said April 27 in launching the fund, which will be known as the Canada Strong Fund. “We will make it easy for individual Canadians to invest in the fund and therefore own a small piece of nation-building projects and share in their returns.”

The idea of a sovereign wealth fund to invest public funds for the public interest is not new, even in Canada. The Heritage Savings Trust Fund operates on this basis in Alberta. The Caisse de dépôt – a public pension fund manager – operates with an economic development mandate in Quebec. Around the world, many governments have established national wealth funds, sometimes investing enormous surplus revenues from their oil and gas assets.

The distinguishing feature of the new Canadian fund is its individual investment mandate. The government is promising to create a retail product to support the fund, which it says will be widely available to average investors.

Green investors beware

On paper, the product sounds like it could be a hit, harkening back to the Canada Savings Bonds that were enormously popular with individual Canadians in the 1960s and 1970s as a way of earning decent returns while supporting the national interest.

The government said projects will be selected from the government’s Major Projects Office and other national-interest projects. The list will likely include port expansions, electric grid improvements, clean-energy facilities and public transit projects, which will have broad support. But the list could also include a whole host of controversial fossil fuel ventures, including liquefied natural gas terminals, pipelines and carbon capture projects, limiting the fund’s appeal.

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Tim Nash, president of Good Investing, a consulting firm that works with individual investors to create sustainable investment plans, says there won’t be much demand for the fund from green investors, who will be put off by its fossil fuel investments. But it could be very popular among investors who are concerned about Canada’s independence and want to support the country’s long-term development and economic security.

“The exciting thing for me is that Mark Carney talked explicitly about a retail offering, which to me is phenomenal,” Nash says. “I think this is targeted at a wider swath of Canadians who are really interested in Canadian sovereignty.”

A door to more?

According to the government’s spring economic statement released yesterday, the product will be easy to purchase, hold and transact, and will provide investors with protection for their initial capital. The fund will be an independent Crown corporation, professionally managed and operating on an arm’s-length basis from the federal government, investing in national projects on a fully commercial basis.

This is good politics, this is good economics. Across the board, we need a retail offering. I think there’s going to be a lot of energy around this.

– Tim Nash, president, Good Investing

Initial seed capital for the fund will come from a three-year, $25-billion commitment from the federal government. Carney said he expects the fund to grow over time as investments are sold and capital is reinvested.

Nash says he hopes the fund will inspire other retail investment products with government support. An investment product based on the Canada Growth Fund – similar to the Canada Strong Fund but with a clearer cleantech focus – would be very attractive to green and conventional investors, he says. Similarly, he says a Canada green bond widely available to individual investors would have strong demand.

Many questions remain

The background materials provided by the government are light on details, and a consultation is now proposed to iron out the many remaining questions. It’s not clear how the investment product will be structured, or whether it will be available through bank branches, financial advisors or directly from the government. It’s also not known how the principal investment guarantee will work or how much access investors will have to their funds given the long-term nature of the underlying investments.

Nash also says a top question is whether the fund will be eligible for tax-advantaged accounts, such as registered retirement savings plans. He calls this an absolute necessity to avoid the modest returns from the fund being depleted by income taxes.

If the government can get the basics right, however, Nash says, it could be very popular and replicated across other government programs to help bolster private investment. He says investment offerings in public programs could help to create popular support for them by giving people a direct stake in their success.

“This is good politics, this is good economics,” he says. “Across the board, we need a retail offering. I think there’s going to be a lot of energy around this.”

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).

The post Mark Carney’s ‘people’s fund’ puts small investors on the front lines of economic defence appeared first on Corporate Knights.

Canada’s “sustainable finance taxonomy” – named after a similar classification system in the European Union – will function as a label for green and climate-transition investments. Approximately 60 countries around the world have implemented similar taxonomies or are in the process of developing them.

“To stay competitive and attract investment, Canada needs to send clear signals of our climate-readiness to capital markets,” said Marlene Puffer, chair of a new governance council that is overseeing the initiative. Announcing the council last week, she said the goal is to help Canada attract an additional $115 billion annually in capital needed to finance its low-carbon transition.

The council – made up of representatives from the financial industry, universities and climate advocacy groups – will be federally funded but will operate on an arm’s-length basis from Ottawa. It’s scheduled to finalize taxonomy details for three as-yet-unnamed economic sectors by the end of 2026, and three more next year.

The two-year timeline means the taxonomy likely won’t have significant impact in the immediate future, including for investment decisions on infrastructure projects under review by the federal government’s Major Projects Office. But its usefulness is expected to grow as the climate and energy transition takes hold in the late 2020s and early 2030s.

Patricia Fletcher, chief executive officer of the Responsible Investment Association, the Canadian trade group for sustainable investment, says the taxonomy will help to ease greenwashing suspicions over climate claims by investment funds and asset managers. “It will make it easier for Canadian investors to understand what is green, what is not, and what is transition,” she says. “It’s ultimately going to be one of the tools that dispel concerns about greenwashing.”

Mitigation for oil and gas [such as carbon capture and storage] is almost by definition carbon lock-in.

– Matt Price, executive director, Investors for Paris Compliance

The European experience shows that taxonomies can help to raise climate-friendly capital. EU taxonomy–aligned investment reached €273 billion in 2024, bringing total capital to €742 billion since 2022. An academic study published last year found “robust evidence” that European stock of taxonomy-aligned companies traded at a premium over non-aligned companies.

The Canadian taxonomy was first proposed in 2019 by the Trudeau government’s expert panel on sustainable finance. A second consultative group produced a taxonomy road map in 2022. Two years later, the government completed preliminary work and last December handed over the project to the non-profit Canadian Climate Institute and the independent council. It was that council that was named last week.

How will the taxonomy work?

According to a 2024 Canadian government backgrounder, green-labelled investments would include low- or zero-emitting activities aligned with a 1.5°C increase in global warming as mandated by the Paris Agreement. Examples would include green hydrogen, wind and solar projects, electricity transmission lines and hydrogen pipelines. Transition-labelled investments would include activities that are currently emission-intensive but can convert to low-carbon technologies. Steel plants moving from coal-based production to natural gas, hydrogen or electricity would be an example.

The backgrounder cited six sectors crucial for the Canadian low-carbon transition: electricity, transportation, buildings, agriculture and forestry, manufacturing, and extractives (mining, processing and natural gas).

The new council is not bound by these green and transition definitions or specific sectors, although it’s expected it will use these sectors as the basis for its taxonomy.

Natural gas has been a contentious area. The EU taxonomy treats natural gas and nuclear energy as transitional investments if they meet certain conditions. It deems gas as a transition fuel because it is an alternative to higher-emission fuels such as coal. The EU taxonomy has assigned a transitional label to gas projects with the proviso that there are established phase-out periods for gas plants.

In an interview with Canada’s National Observer, Puffer said she would not speculate on whether the Canadian council would include liquefied natural gas (LNG) or carbon capture and storage (CCS) systems in its definition of transition activities. Climate advocacy groups maintain that LNG development can lead to additional long-term carbon emissions, known as carbon lock-in. CCS projects also pose a lock-in problem and have often failed to meet their ambitious carbon-dioxide-storage targets.

Taxonomy should be science-based: climate action groups

In a joint statement released last month, more than 30 non-governmental organizations and climate action groups outlined a set of basic principles they believe are essential for a credible taxonomy. The signatories contend that eligible activities under the taxonomy should be based on the Paris Agreement goal of limiting global temperature rise to between 1.5°C and 2°C. “This requires the rapid and systemic replacement of oil, gas and coal with clean energy,” according to the statement.

The signatories contend that the transition label should be restricted to high-emission activities for which there are no commercially available alternatives. Examples of these would include cement and steel, says Matt Price, executive director of Investors for Paris Compliance and a lead author on the document. “Mitigation for oil and gas [such as carbon capture and storage] is almost by definition carbon lock-in,” he said in an email. “LNG isn’t even mitigation unless a specific contract exists between that investment and closing a coal plant, and even that’s disputable on a life cycle basis.”

The group has also called for eligible investments to “do no significant harm” (a feature of the EU taxonomy) to ensure protection of important social and environmental considerations such as biodiversity preservation and labour rights. Additionally, the group calls for eligible investments to uphold Indigenous rights, including the free, prior and informed consent of Indigenous communities on projects affecting their resources.

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The group also recommends that the taxonomy be written with simple, clear language, making it interoperable (consistent) with other taxonomies. This would enable companies to use interchangeable reports from their disclosures under other taxonomies, easing their reporting burden if regulators eventually require public disclosure of their information.

Ralph Torrie, research director at Corporate Knights, says the taxonomy council should look to the Australian sustainable finance taxonomy released last year as a potential model for Canada. It’s a clear Paris-aligned classification system for green and transition investments, reflecting the needs of a similar resource-based economy. “People are paying a lot of attention to the Australian taxonomy,” he says.

Council begins work at a critical time

The council is beginning its work at a time of significant turmoil in energy markets, as the war in Iran has driven up oil and gas prices. This is creating expectations that Canada can benefit by building additional infrastructure for LNG export or CCS projects to expand oil-sands production, adding to carbon lock-in. Conversely, the energy crisis is also creating calls for Canada to electrify its economy to reduce dependence on increasingly expensive fossil fuels.

This issue is going to play a central role in the work of the council over the next two years. It will need to determine the boundaries for green and transition investments at a time when there are calls for expanding both clean and fossil fuel energy.

By flashing a green light on net-zero activities and a cautious amber on transition investments, the taxonomy should help to steer the capital markets of the 2030s in a more sustainable direction.

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).

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“Our pension funds are amongst the world’s largest and most sophisticated investors,” Carney told the World Economic Forum in Switzerland. The funds are one of Canada’s prized assets, along with the country’s educated workforce and its sizable reserves of energy and critical minerals. “We have capital, talent and a government with the immense fiscal capacity to act decisively.”

But some key questions were left unasked: If Canada’s pension funds are so powerful, why aren’t they investing more in their home country? Is it possible for these behemoths of global finance to commit more of their multitrillion-dollar assets to the Canadian economy in this time of need?

In the past, most of Canada’s major pension funds have pushed back against even a whiff of political interference. Yet recently, some pension CEOs are saying they are open to investing more in Canada, especially in strategic sectors of national interest. Deals like the recent Caisse de dépôt et placement du Québec (CDP) investment in renewable-energy company Boralex show that some of the funds are already moving in this direction.

Are these sleeping giants getting ready to pony up the capital needed to kick-start Canada’s critical industries? Here are the central issues in this debate.

The Maple 8’s global reach

Canada’s major pension funds rank among the top in the world. The eight largest, known as the Maple 8, manage more than $2.5 trillion in assets. The largest of these, the Canada Pension Plan Investment Board (CPPIB), is the seventh-largest pension fund in the world. At the end of 2025, CPPIB held $781 billion in assets for the CPP, which serves 22 million Canadian workers and retirees.

CDP, which manages funds for the Québec Pension Plan and other public funds and investors in Quebec, is number two in Canada at $517 billion. The Ontario contingent includes three large public-sector funds: the Ontario Teachers’ Pension Plan (OTPP), the Healthcare of Ontario Pension Plan (HOOPP) and the Ontario Municipal Employees Retirement System (OMERS). The Maple 8 also includes British Columbia Investment Management Corp. (BCI) and Alberta Investment Management Corp. (AIMCo), investing funds in B.C. and Alberta, and Public Sector Pension Investments (PSP), managing federal public-service pension funds.

The funds have developed a management style known as the Canadian model, marked by independence from the governments that established them, internal professional management (rather than outside managers) and global investment in stocks and bonds and alternative assets such as real estate. The formula has mostly been successful. The annual average return of Canadian pensions has outperformed all but a few countries since the financial crash of 2008, although gains have slipped in the last two years as a result of declining real estate and private equity assets.

Pensions already invest in Canadian stock markets. Could they invest more?

The global profile of these funds has sparked calls to invest more in Canada. A CBC investigation in February showed that most of the Maple 8 invest far more in the United States than in Canada. CPPIB, for example, has $366 billion invested in the United States (47% of its total) and only $98 billion in Canada (13%). OMERS’s portfolio is 55% American, and PSP is 41% invested in the United States.

The level of U.S. investment seems shocking, bordering on unpatriotic, considering the recent economic pain inflicted by the United States. Only three of the Maple 8 funds have more assets invested in Canada than in the United States – HOOPP, OTPP and AIMCo.

We have the capital available right now to make those investments. We’re just waiting for those opportunities to manifest themselves.

– Michael Wissell, CIO, HOOPP

But compared with Canada’s share of global markets, the pensions are actually over-invested in their home country. According to the MSCI World Index (a broad-based investment index holding companies across the globe), the United States represents 70% of total world investment markets. Canada’s share is tiny at only 3.6%.

The funds argue that their mandate is to invest across the world in markets, sectors and companies that will deliver the best returns at acceptable risk to ensure that they can meet their long-term pension payouts.

Paul Calluzzo, a professor at the Smith School of Business at Queen’s University and a researcher for the Institute for Sustainable Finance, points out that pension funds have a legal and ethical obligation to invest in the best interests of their beneficiaries. “If a pension fund was to invest more in Canada, or support strategic industries, or just invest in infrastructure that was strategically important, that would be a cross-subsidy where the pension holders are footing the bill for something that benefits everyone,” he says.

The pension funds contend that it’s prudent to over-invest somewhat in Canada because of their “home-field advantage” through their detailed knowledge of local companies and cultures. But governments should resist the urge to think of pension funds as a national piggy bank, Calluzzo says. “There’s a temptation to say, ‘We have these huge pools of capital; let’s do something with them that helps Canada,’” he says, adding that it’s important to be mindful that pensions don’t belong to governments. “Those huge pools of capital are from the people who have been paying into their pension all those years. That’s something that should be respected.”

Pension CEOs open the door, but just a crack

Nevertheless, over the last few months, several pension fund CEOs have said they are open to investing more in Canada.

“As a nation, we have a significant opportunity to build a stronger and more resilient future, and OMERS wants to be part of that,” CEO Blake Hutcheson said in February. “We like the advantage that our relationships and on-the-ground expertise offer.” OMERS is looking for deals that support the fund’s financial objectives and Canada’s growth, he said.

“We have the capital available right now to make those investments,” Michael Wissell, chief investment officer at HOOPP, told Reuters on March 10. “We’re just waiting for those opportunities to manifest themselves.”

Last June, PSP CEO Deborah Orida said her fund is actively looking for additional Canadian investments. After years searching for global alternative investments, she told Bloomberg, “at PSP we’re asking ourselves: Have we been underleveraging our home-ice advantage.”

And in a speech last September, John Graham, CEO of CPPIB, cheered what appears to be a new spirit of cooperation by federal and provincial policymakers. “Unity and coordination will initiate the nation-building projects Canada requires. And those are exactly the projects that international and domestic investors, including us, are eager to invest in.”

Two years ago, it was a different story. The funds vigorously pushed back against a letter signed by 90 Canadian business and financial leaders, calling for rules to require pension funds to invest more domestically.

But last year’s Trump tariffs have created an elbows-up mood among Canadians, including millions of members of the plans the funds manage. The funds are also confident that Carney – former central banker and Bay Street executive – will seek ways for them to finance national projects without increasing risk or jeopardizing returns. “We can do more together, respecting that they [pension funds] are independent but at the same time looking at opportunities,” Finance Minister François-Phillippe Champagne told CBC in February.

Key sectors: Energy, critical minerals, defence and infrastructure

So what are the strategic sectors that could be targeted for additional investment?

Certainly energy – especially electrification – is one promising area. According to a list of proposals by the Major Projects Office (MPO), the federal agency is looking at a number of clean-energy proposals, including small modular reactors in Ontario, northern hydro projects and a British Columbia transmission line. The Shareholder Association for Research and Education recently released a report saying $220 billion in proposed new investment is threatened unless Canada’s power grid is urgently modernized, a need expected to be a focus of the upcoming federal electrification strategy. Support for clean energy has also been triggered by the recent spike in oil and gas prices caused by the U.S.-Israel invasion of Iran.

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Last week’s $3.8-billion acquisition of Boralex by CDP and Brookfield Asset Management is a sign of growing pension interest in clean energy. The investment “aligns with our commitment to the energy transition and our determination to help build Quebec-based champions,” said CDP executive vice president Kim Thomassin. The investment follows the fund’s $10-billion takeover last year of Innergex Renewable Energy. (CDP is unique among the Maple 8, however, operating with both financial and Quebec development mandates).

Rising oil and gas prices from the Iran war also means that liquified natural gas projects and Alberta’s proposed Western oil pipeline could also be a focus for pension funds. Oil and gas investment hinges on how long the price hikes will last and whether they will minimize the future glut in fossil fuels caused by the global renewable-energy transition. AIMCo is a large investor in Alberta’s oil and gas industry, including a major holding in the Coastal GasLink pipeline. There have been suggestions that the Alberta government may pressure AIMCo to ramp up its provincial oil and gas investments. To date, though, AIMCo has not expressed interest in the proposed oil pipeline.

Critical-mineral projects have also been identified as priorities for the MPO. The federal government adopted a national critical-minerals strategy in 2022, aimed at promoting domestic production and processing. According to the most recent strategy update, there are 140 mining projects planned for development by 2034, worth $72.4 billion in potential investment.

The Carney government’s Defence Industrial Strategy could also create investment possibilities. No defence-related proposals have yet been identified by the MPO. However, the government’s “buy Canadian” approach aligning defence purchases to the battery and critical-minerals sectors, as well as its upcoming electrification strategy, has potential to generate additional defence-sector investment, said New Economy Canada, a coalition of 60 business, Indigenous and labour organizations.

Infrastructure including transport projects, data centres, waste and water facilities, and agriculture also hold future investment potential. CPPIB has already identified data centres as a key area, pointing to its $225-million data-centre investment in Cambridge, Ontario. Transportation, such as the Alto high-speed rail project, also holds potential. CDP is already taking a lead role in this proposal, joining the consortium developing the project.

Reaching out for help from Australia

With such a long list of potential projects, the funds have called on some of their colleagues in Australia to lend a hand.

Representatives of the Maple 8 funds (plus the Investment Management Corporation of Ontario, manager of Ontario government pensions) signed an agreement with a group of large Australian pension funds to foster joint investments. They pointed to “a shared heritage, open and resource-rich economies, strong credit worthiness” and legal institutions as solid terrain on which to build.

Like Canada, Australia has a group of fast-growing pension funds with a relatively small domestic investment market, prompting it to look for partners around the world, particularly for infrastructure investments. IFM Investors, one of the Australian signatories, already invests in two Canadian infrastructure companies, Global Container Terminals in Vancouver and Enwave Energy in Toronto. IFM said it intends to invest up to $10 billion in Canada over the next decade “with the right policy settings in place.”

With this agreement, the funds are exploring possibilities for a larger pool of infrastructure investors, a strategy that would reduce risk for any individual fund.

It’s all about the projects

In the federal budget in November, the government set a target of enabling $1 trillion in total new investments over the next five years in Canada. The government’s charm offensive is aimed at persuading pension funds and other investors to open their wallets to help meet this ambitious target.

Ultimately, it will come down to whether the right projects can be put on the table. Proposals will need to meet three requirements: they’ll need to be in the national interest, demonstrate a high probability of returns that meet or exceed fund benchmarks, and represent an acceptable level of risk. Governments, project proponents and pension funds are looking for investments that check all three of these boxes.

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).

The post Can Ottawa convince Canada’s pension giants to invest at home? appeared first on Corporate Knights.

Regulators and legislators rolled back pro-sustainable investment rules in the United States, tightened guidelines in Europe and paused headway in Canada in a global onslaught on green financing.

Assets invested in environmental, social and governance portfolios flattened as the ESG term itself fell into disfavour among the least committed green funds and investment managers. Even so, growing interest in climate transition industries and renewable energy buoyed the sector’s prospects, strengthening impactful areas of sustainable finance.

So what’s next for 2026? Here are my predictions for sustainable and responsible investment for the year ahead.

1. Sustainable funds will assume a low profile in the battle for market share

The share of the total investment market in the United States held by sustainable finance held steady in 2025 at 11% of total assets under management in 2025, a slight decline from 12% a year earlier, according to the U.S. Sustainable Investment Forum (US SIF), the industry’s trade group. Sustainable assets were US$6.6 trillion in 2025 and total assets under management were US$62 trillion. The estimate includes institutional and individual assets specifically labelled as “sustainable” or “ESG.”

Maintaining this market share in 2026 will be a challenge. The industry is facing a continuing barrage of anti-ESG rhetoric from the Trump administration. The attacks were exemplified by a September speech by Trump pension policy adviser Justin Danhof, who told an international conference in Paris that “ESG at its core, looks a lot like a Marxist march through corporate culture.”

The industry is taking a low profile in the face of such bombast. Only 10% of sustainable investment managers surveyed by US SIF this year said they planned to add significantly to their assets in the next 12 months, and about a quarter said they plan to moderately increase their allocation. About half are planning to hold their sustainable assets at the current level.

Some asset managers have become reluctant to publicly associate their sustainable funds with ESG strategies. One in four sustainable investment managers surveyed by US SIF said they have stopped using the ESG acronym.

Launches of new sustainable funds around the world have largely dried up. Morningstar said there were only 26 new sustainable funds launched in the three months ending September 30, down from 92 in the second quarter and significantly lower than the 200 funds launched in the fourth quarter of 2022. Of the 26 launches, 20 were in Europe.

The takeaway: As the Trump assault on ESG continues, large mainstream investors like BlackRock, State Street and Vanguard will keep their heads down. Don’t expect a revival in sustainable fund launches or increased ESG marketing in 2026 and not until 2028 near the end of Trump’s term.

2. Banks will ramp up financing for liquefied natural gas projects

The world’s largest banks provide important financing to fossil-fuel and renewable-energy companies through loans and underwriting services. As a major source of capital to oil and gas, climate action groups are pressuring banks to phase out their fossil fuel financing.

Initial data show that banks reduced fossil fuel financing by about 25% in the first seven months of 2025 compared with the same period a year earlier. The current glut in oil supplies has put a damper on new drilling and reduced demand for capital, particularly in the United States.

Nevertheless, lending and underwriting to the fossil fuel industry is expected to grow in the coming year because of a continued global expansion in liquefied natural gas (LNG) infrastructure. According to Paris-based Reclaim Finance, there are 279 new LNG projects  planned around the world. If completed, these projects will produce enough gas to create more than 10 billion tonnes of carbon dioxide annually (or more than a quarter of all current energy-related emissions), “destroying any hope of achieving global climate goals,” Reclaim Finance says. The group estimates that global banks have already provided US$174 billion to LNG projects between 2021 and 2024.

The takeaway: With some exceptions such as a possible new oil pipeline in Western Canada, demand for bank financing for oil companies and projects will weaken in 2026 along with lower oil prices. But the massive expansion in LNG projects will continue to  create demand for gas infrastructure financing. This will trigger added pressure on the banks by climate action groups and Indigenous communities to turn off the taps to the gas industry.

 3. Renewable-energy and climate-transition industries will be a bright spot

As 2025 came to a close, stock markets became increasingly jittery over prospects for the highly concentrated tech sector, especially the so-called Magnificent Seven stocks that make up about 35% of the S&P 500 index. Concerns are growing that the colossal run-up in these stocks caused by massive investments in data centres is coming to an end.

The stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet and Tesla) were darlings of conventional investment portfolios in 2023 and 2024. Many broad-based sustainable portfolios with ESG screens also held them based on neutral to positive rankings on most environmental and social issues.

Popularity among ESG investors started to cool in 2023 after the introduction of ChatGPT raised concerns over the massive energy demands of AI data centres and other environmental issues such as water use. There are also exploding concerns over the role of social media in shaping political views among many groups such as young men.

Now, some conventional analysts are suggesting that investors should take their profits from the Magnificent Seven and rotate into other sectors such as energy and industrial stocks. For sustainable investors, this could be a good time to buy shares in clean-energy companies, which outperformed both tech and oil in 2025, and climate-transition industries.

Examples of such companies can be found in the Morningstar Sustainalytics 21-company climate transition list. The names include Italian utility Enel, electrical component manufacturer Schneider, Norwegian aluminum and energy producer Norsk Hydro, industrial gas manufacturer Air Liquide and wind power systems company Vestas.

The takeaway: Look for continuing strength among renewable-energy stocks in 2026, as well as some surprise breakouts in industrial and basic materials companies with strong carbon dioxide emission policies and product lines that will benefit from the climate transition.

Read Eugene’s predictions from last year

Seven sustainable finance predictions for 2025

4. European sustainable fund turmoil will come to an end

Europe, where about 85% of the world’s sustainable fund assets are located, has been embroiled in a year-long controversy over how its sustainable funds should be named or described to investors. Morningstar estimates that more than 1,500 funds with a value of more than US$1 trillion, or 28% of the sustainable funds in Europe, have been renamed since the beginning of 2024. More than 700 of these were renamed in 2025.

The key issue is a new set of rules stipulating that funds with environmental terms in their names must exclude fossil fuel holdings and ensure that at least 80% of their portfolio meets environmental goals. Funds using a “sustainable” name must show meaningful holdings in sustainable assets. The rules were established by the European Securities and Markets Authority (ESMA) with a May 2025 compliance deadline.

Most funds that changed their names dropped the terms “sustainable,” “ESG” or “responsible” from their labels but didn’t change their objectives or strategies. The controversy has created confusion among investors and reinforced greenwashing suspicions.

In November, the European Commission proposed a set of amendments to its Sustainable Finance Disclosure Regulation (SFDR) to further clarify naming rules for sustainable funds.  Going forward, funds will fall under three labels: sustainable, transition and ESG basics.

The Institutional Investors Group on Climate Change welcomed most of the changes, saying they are useful tools for fund transparency. However, IIGCC also said that a streamlined list of mandatory criteria for assessing assets could help to promote greater comparability between funds. The package will now go to the European Council and Parliament for final approval.

The takeaway: Now that the ESMA renaming controversy has eased, European fund managers and advisers have a better framework to explain the differences in sustainable fund approaches. And while the new SFDR rules won’t be finalized until 2027, fund companies and advisers can immediately discuss investments with their clients using the new framework, suggesting options for clients concerned about issues such as fossil fuel holdings in ESG funds.

5. Canadian pipeline plans won’t find private investors

A sustainable-investment controversy is brewing in Canada over the recent agreement between Prime Minister Mark Carney and Alberta Premier Danielle Smith to work toward a new pipeline to ship oil-sands bitumen to the West Coast. Almost immediately after the November announcement, industry experts and critics said the pipeline is not feasible since there is no private-sector proponent, required Indigenous approval is unlikely, and the British Columbia government is opposed to lifting a West Coast tanker ship ban.

What few people have talked about is that it is also unlikely that a major bank, consortium or equity investor will also come forward. There is no official cost estimate for the project. However, based on other recent pipelines, it would likely be in the tens of billions of dollars, a cost too high to be recovered through oil transit tolls, according to the International Institute for Sustainable Development. Investment analysts have expressed skepticism that the pipeline will receive private-sector support.

Even if the economic model for the pipeline worked, any bank or consortium of lenders or equity investors would be hesitant to back the project. One of the last major pipelines constructed in Canada – Coast GasLink – triggered multi-year vocal protests at RBC, one of its lenders. Given the high-profile nature of the  West Coast oil pipeline, similar protests could be expected at any bank or equity investor supporting the project.

The project is also unlikely to fall within the green or transition “taxonomy” guidelines to be developed starting in 2026, governing which Canadian investment activities will be officially labelled as sustainable. Development of the guidelines will be led by the Canadian Climate Institute think tank and Business Future Pathways, a coalition headed by a who’s who of sustainable-investment champions and representatives of climate action NGOs. Even if oil shipped through the pipeline will be produced with lower per-barrel process emissions than present oil-sands oil, it will be tough for the new group to give such an investment a transition label given the high level of Scope 3 or end-use emissions it will facilitate. It’s highly unlikely that banks or equity investors will be able to proclaim investment in the pipeline as a transition investment.

The takeaway: The lack of a pipeline company or group of companies to champion the project in 2026 will enable banks and equity investors to stay on the sidelines. Given the longstanding glut in oil supplies, there will be little progress on the project in the coming year despite ongoing political support from Ottawa and Alberta.

The big picture

The Trump administration is ramping up its attacks on sustainable finance and ESG and its support for fossil fuels. This has provided hope for oil and LNG proponents that the financial community will get behind an expansion in conventional energy. The economics of alternative energy sources suggest that renewables should win out, but this is not a sure thing. What’s known is that inexpensive green energy and climate-friendly manufacturing are moving ahead. The crusade against ESG will continue for a few more years, but it won’t stop the smart money from supporting the industries of the future.

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).

The post Five sustainable finance predictions for 2026 appeared first on Corporate Knights.

But that doesn’t mean the project is dead.

Climate action groups, governments, development agencies and even some banks and investors are holding out hope that the trail-blazing fund – known as the Tropical Forest Forever Facility (TFFF) and spearheaded by COP30 host Brazil – can become a reality, providing billions of dollars annually to halt tropical deforestation.

“This is a landmark moment for nature and climate finance,” Kirsten Schuijt, director general of the World Wildlife Fund, said in a statement. Ani Dasgupta, CEO of the World Resources Institute, said the fund “has real potential to be a breakthrough for the world’s forests.”

Yet only a handful of COP countries pledged to invest in the fund, totalling $6.6 billion in initial capital, well short of the $25-billion target for government contributions set by Brazil. Brazil is aiming to raise a further $100 billion in private money from asset managers, investment funds, private investors, philanthropic organizations and corporations, for a total fund size of $125 billion. (All funds in U.S. dollars.)

The initial contributors included Norway, Brazil, Indonesia, Germany, France, Colombia and Portugal. These countries pledged to invest in the all-important first tier of TFFF’s capital, money that would be used to provide first-loss guarantees to cushion private investors against losses.

Despite the small initial contribution, 53 countries endorsed the concept, suggesting there could be more public money to come. The European Bank for Reconstruction and Development and the Asian Infrastructure and Development Bank – two of the world’s largest development banks – are also considering investment in the fund, according to the Devex media platform on international development.

And Daniel Hanna, head of sustainable and transition finance for Barclays, said the British-based bank is looking to support the fund through bond underwriting services. Underwriting is a critical part of the process to sell bonds to institutional investors. “I remain very optimistic around the TFFF moving forward,” Hanna said.

Forests are ‘worth more standing than felled’

The fund was one of the signature projects announced by Brazil at this year’s COP, which was held in the Amazon rainforest city of Belém. The concept was held out as a way for private finance to ramp up support for forest and climate protection while addressing inequalities between the Global North and South.

Tropical forests are suffering severe deforestation from commercial agriculture (particularly from beef, soy and palm oil), logging, mining and infrastructure development, moving the forests from carbon sinks to carbon sources. The fund would be an endowment to provide permanent funding to tropical nations to keep their existing forests intact. “It is an unprecedented initiative,” said Brazil President Luiz Inácio Lula da Silva in launching the fund at COP. “Forests are worth far more standing than felled.”

The fund plans to invest in government and corporate bonds (excluding bonds in fossil fuels and environmentally destructive sectors) primarily in developing countries.

The fund is also based on a “blended finance” model. The sponsor money from governments would provide a reserve against losses by private investors, mitigating the risk of placing capital in higher-interest investments. This would enable the fund to attract capital from a broad range of market players such as pension funds, asset managers and investment funds.

Brazil’s balancing act at COP30

The total target return is 7.6%. Investors would receive the lion’s share of this income (targeting a 4.9% return), and the remaining 2.7% would be used to pay developing countries a fee for maintaining tracts of tropical forest within their boundaries. Penalties would be incurred for deforestation. Indigenous communities on those lands would receive at least 20% of the funds to manage the forests.

At the target level of capitalization of $125 billion, the fund would generate $3 to $4 billion annually to be disbursed to about 75 tropical countries and their Indigenous communities. The World Bank estimates this would work out to about $4 per hectare of protected forest land.

TFFF is “quite unique and quite pioneering” in the world of blended finance, says Nick Zelenczuk, a researcher with the Toronto-based Convergence blended finance think tank. Blended finance models typically use public capital to cushion losses by private investors in higher-risk impact ventures. But rather than generating a direct return from the project, TFFF shares the proceeds of the bond fund between the forest and the investors. “Using the return from the fund to drive the incentive scheme is novel in the [blended finance] market,” Zelenczuk says.

Forest payments versus carbon markets

One of the reasons there is high interest in making TFFF work is that it is considered a more promising climate finance model than carbon markets, the option that has commanded much attention at recent COP meetings.

The idea of carbon markets is that corporations or financial institutions buy “carbon offsets” that are linked to specific volumes of carbon avoided, reduced or removed through activities such as reforestation or renewable energy. The system of accounting for these carbon volumes is not well established. The value of carbon credits is based on estimates of future carbon reductions, estimates that may be wrong to begin with or fail to meet projections. A study last year of more than 2,000 carbon-credit projects found that only 16% of the projects achieved the carbon savings claimed. As a result, corporations and investors are losing interest in carbon markets, and money for projects is drying up.

The TFFF represents an alternative focused on forest lands – not estimated carbon – which can be transparently and accurately tracked over time. If the lands become deforested, the annual payments will stop or be reduced.

“Offsets have too often been used as a license to pollute,” Australian billionaire businessman Andrew Forrest said in a statement announcing a $10-million investment in TFFF. “They categorically do not work the vast majority of times they have been independently measured. This is the opposite. The TFFF makes forest protection a strong economic choice in favour of our environment – rewarding countries that actually keep their forests intact.”

But will there be enough money?

With such a disappointing start, however, will the fund be large enough to create lasting impact? After the British government signalled early on at COP that it would not be supporting the TFFF, the project lost some momentum.

At the current level of capitalization, tropical forest nations will receive only 16 cents per hectare per year, a far cry from the $4 projected by the World Bank. But the Brazilian government believes the fund is well positioned to attract more funds. Finance Minister Fernando Haddad called the initial investment “auspicious,” anticipating that “after this first investment . . . we will have a very good start.”

Launch of the TFFF fund has come at a timely moment. The U.S. government under Donald Trump has slashed development assistance and decimated its international development agency, USAID. Other countries like the United Kingdom are also cutting assistance to poor countries. At the same time, market-based approaches like carbon credits have fallen out of favour.

A third way is needed. TFFF represents a new approach, one that uses the financial power of the markets to create a very non-market outcome, the survival of the world’s tropical forests.

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).

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But big questions remain. Does the alliance’s collapse open the gates for full-scale bank financing of fossil fuels? Or does it point to a lower-profile but possibly more effective financing path for the climate transition?

And what about bank regulation? Does the failure of this voluntary initiative validate what many non-governmental organizations have been saying for years; namely, that the banks should be compelled to invest in the climate transition through regulation?

These questions are now front and centre after the alliance – known as NZBA – closed last week, ending its existence as a membership organization and converting to an archive of banking-industry climate-target guidance.

NZBA was the flagship of the Glasgow Financial Alliance for Net Zero, former United Nations climate envoy Mark Carney’s high-profile effort to marshal the world’s largest financial institutions to reduce carbon emissions. When launched in 2021, NZBA and other financial industry networks pledged to reduce their carbon emissions to net-zero by 2050 and to align billions of dollars in assets to the climate transition.

But as banks were called upon to live up to their net-zero commitments through short-term reductions in fossil fuel lending and underwriting, many of the alliance’s leading members jumped ship. All the major United States and Canadian banks left NZBA earlier this year, followed by many European and Japanese lenders. With Carney now in the role of Canada’s prime minister, the alliance lost its key leader. Staving off anti-climate pressures and potential legal challenges in Europe, the remaining 140 NZBA members voted to formally close the organization.

“The end of the NZBA is a real loss,” writes David Carlin, a climate adviser to the financial sector. NZBA provided market signals, a community of practice and transition pathways on climate risk, Carlin argued in a blog post: “Those values do not disappear with the end of the alliance, but the collective ambition is weakened.”

‘Zombie targets’ possible

Todd Cort, sustainability lecturer with the Yale School of Management, said the banks could enter a protracted period of limbo in which they don’t drop net-zero targets, but neither will they work toward them. “What worries me is that I think there is a higher probability of zombie targets,” he told Trellis Briefing.

Collaborations such as ShareAction in Europe and the Shareholder Association for Research and Education in Canada will continue to exert shareholder pressure on banks to account for their emissions targets. Climate-dedicated investors such as New York City Pensions will continue to be key members of these coalitions. And jurisdictions like California have enacted climate legislation to provide at least some measure of accountability by banks and other companies through mandatory disclosure.

But Donald Trump’s overwhelming control of the public agenda rules out any meaningful measures to compel the banks in the United States to reduce fossil fuel lending and underwriting. This would suggest that the banks – particularly those in North America – are getting ready for years of full-throated support of coal, oil and gas. After two years of decline in fossil fuel financing, the global banking industry reversed course in 2024, sharply increasing fossil loans and underwriting.

The distressing prospect that banks could enter a period of long-term financing for fossil fuels – and the impact this would have on global warming – has triggered a debate among climate and sustainability activists and researchers. Some are doubling down on public action, mounting bank protests in the United States and Europe.

But RMI (formerly known as the Rocky Mountain Institute) is taking a different approach, calling for a “recalibration” in how climate campaigners and advocates relate to the banking industry.

Banks not ‘moral agents’

In a report issued only weeks before the NZBA closure, RMI argues that the non-profit climate movement has overestimated the power of the banking industry to unilaterally direct its capital to the climate transition. “Banks are not moral agents or policy substitutes,” the report states. “They are commercial actors operating within regulatory, fiduciary and risk-based constraints.” The report says some climate advocates don’t consider the “complex, interconnected spider webs” of the banks and the economies in which they operate. “The expectation that banks (or any part of the financial sector) could drive the energy transition was myopic.”

Banks and fossil fuel companies are drawn to one another partly because lenders can extend sizable loans to oil, gas and coal companies based on their healthy balance sheets. This enables banks to issue credit without committing large amounts of their own capital under lending regulations. By contrast, low-carbon projects such as renewable-energy facilities typically require project financing, representing greater regulatory and financial risk to the banks. In addition, private equity, asset managers and pension funds can provide ownership financing to these projects that is not an option for most banks.

Given such limitations, RMI argues that civil society organizations should shift their focus from confronting the banks on climate targets to engaging with them on specific low-carbon transactions, such as clean power, green steel, zero-carbon homes, methane abatement and renewable fuel projects.

“What we need now is less choreography and more closing of deals,” says Kaitlin Crouch-Hess, senior principle for RMI’s newly formed Center for Climate-Aligned Finance. “We can get capital flowing by recognizing banks’ commercial role and playing to their strengths,” she says in an email statement. “Where the economics do not add up, we must work across the financial, policy and corporate systems to align policy and risk-sharing.”

Fossil risk buffer needed

While RMI’s new approach is aimed at boosting the low-carbon economy, it doesn’t address the large climate risk posed by bank-financed fossil fuel projects.

Last month, sustainable investment advocate Finance Watch issued a report showing that the 60 largest banks in the world carry more than US$1.6 trillion in credit exposure to coal, oil and gas. Finance Watch argues that as the world electrifies and decarbonizes, this large fossil-industry exposure poses a major risk to the banks as the value of fossil assets supporting loans could decline sharply and suddenly. “Banks have more than a trillion dollars of exposure to mispriced fossil fuel assets,” Julia Symon, head of research and advocacy at Finance Watch, said in a statement. “This is a carbon bubble that could burst, like subprimes in 2008. This risk is not properly recognized and banks are not prepared.”

Finance Watch argues that the European Central Bank (ECB) should impose a climate risk buffer (a requirement that additional bank capital be set aside for fossil loans). Banks with more fossil fuel credit on their books would be required to maintain a larger capital reserve, shoring up their stability in the event of a crash in fossil assets. Finance Watch is urging the ECB to impose such a buffer as part of a current review by the central bank on risks to the financial system posed by environmental issues.

While it’s unlikely that the Trump administration would permit such a climate risk buffer to be imposed in the United States, it’s expected that financial regulators in other countries would follow ECB’s lead. Global adoption could also pave the ground for a similar measure in the United States after Trump’s term comes to an end.

The end of NZBA is not good news, but it shouldn’t signal an end to climate action by the banks. Advocacy organizations could engage with the banks on important decarbonization projects and policy supports while also challenging them to achieve their net-zero targets.

At the same time, financial regulators can send a clear signal to the banks that fossil fuel lending is risky. If banks choose to lend to the industry, regulators should ensure they’re going to have to commit more of their own money to do it.

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).

The post Mark Carney’s Net-Zero Banking Alliance is done. Now what? appeared first on Corporate Knights.

In recent policy statements and conference appearances, officials at the Office of the Superintendent of Financial Institutions (OSFI) have sketched the outlines of a plan to unlock hundreds of billions of dollars – perhaps even as high as $1 trillion from the banking industry alone – for this mammoth undertaking.

OSFI head Peter Routledge, who holds the title of superintendent of financial institutions, says Canada’s financial system is so well capitalized that additional loan volumes or equity investments would not threaten the stability of the industry. Banks, for example, could make nearly $1 trillion in additional loans and remain above minimum regulatory capital requirements, he said last week at a financial industry summit.

“I do believe Canada’s financial system is in a strong position to help the economy adapt to our new economic environment,” he said in a speech hosted by the Global Risk Institute on September 17. Additional loans of $1 trillion would have a substantial impact on the Canadian economy, which, as Routledge pointed out, has a value of about $3 trillion in terms of gross domestic product in 2024. “Canada’s banks have ample capacity to help fund the country’s adjustment to this new era.”

Life insurance companies, which have boosted their capital over the last six years, have “ample capital buffers that can similarly be leveraged for new investments in the Canadian economy,” Routledge said.

Freeing up capital from insurers

Routledge said the Canadian economy and its financial sector are facing a level of turmoil not seen since the end of the Cold War in 1991. “The current era is no less bracing than that time. From escalating geopolitical instability and cyber threats to climate change; from domestic shifts to technological innovation; the risks and opportunities facing Canadian financial institutions are complex and consequential,” he said. OSFI “will enable Canadian financial institutions to play a central role in reinforcing Canada’s economic strength in this era of great uncertainty.”

This is not a philanthropic pursuit. This is a business strategy so that we have long-term resiliency. When you’re thinking 25 to 50 years out, you need to think about what the future economy is going to look like, and whether your investments will be there.

– Laura Zizzo, founder, Manifest Climate

In an example of the reforms to come, in July OSFI changed its life insurance capital adequacy regulations, which are the rules mandating how much capital life insurance companies must maintain as a buffer against potential losses on money they invest from policyholders and other customers. Under the new rules, life insurance companies can reduce the amount of capital set aside on investments in public infrastructure projects. The capital charge on debt investments in such projects drops to 3% from 6% and to 30% from 40% on equity investments. The aim is to free up the industry’s capital to create an incentive to invest more in infrastructure.

The life insurance industry welcomes these changes “as something we’ve long advocated for,” Blair Stransky, vice president of the Canadian Life and Health Insurance Association, said in a statement. The new rules “will help unlock significant investments, or billions of dollars, and accelerate national infrastructure projects.” The association estimates that life insurance companies held $50 billion in infrastructure investment in 2024.

The insurance company changes are only one facet of OSFI’s regulatory overhaul. OSFI has rescinded 20 guidelines to streamline regulation and paused some new capital requirements on banks as part of the federal government’s recently announced red-tape review. In remarks at another industry event in early September, Routledge also suggested OSFI may incentivize banks to increase their lending to the defence sector in keeping with the federal government’s pledge to boost military spending. More details will be announced in October, Routledge said.

Climate infrastructure is not charity

The life insurance changes will help the industry adapt to the transition to a low-carbon economy if they use this opportunity to invest in sustainable infrastructure, says Laura Zizzo, founder and chief strategy officer with Manifest Climate. Examples of sustainable infrastructure include flood-protection facilities, carbon capture projects, smart grids and renewable energy. “This is not a philanthropic pursuit. This is a business strategy so that we have long-term resiliency,” she says. “When you’re thinking 25 to 50 years out, you need to think about what the future economy is going to look like, and whether your investments will be there.”

In a joint brief with Corporate Knights to OSFI in 2021, Manifest, which uses artificial intelligence models to advise companies on climate risk, argued that losses on infrastructure investments are lower than on many market investments and capital requirements could be safely lowered, a suggestion implemented with the July changes.

In addition to relaxing the capital adequacy rules, Zizzo says, it’s reassuring that OSFI is holding firm on climate disclosure requirements for financial institutions. By holding the line on climate disclosure, OSFI is bucking the anti-climate backlash by United States and Canadian securities regulators, which shelved similar requirements for corporate stock issuers earlier this year.

Some Canadian insurance companies are recognizing the value of investments in sustainable infrastructure. Great West Life is partnering with Power Sustainable, an arm of parent company Power Corp., investing about $1 billion in sustainable food and infrastructure and renewable energy.

Sun Life has invested $4.2 billion in renewable-energy investments, about one-quarter of the company’s total infrastructure investment of $17.2 billion, according to figures cited by CEO Kevin Strain at the company’s annual meeting in May.

The OSFI reforms come at a time when the Liberal government of Mark Carney is under pressure to make good on his campaign commitment to make Canada into a conventional and clean energy superpower. The prime minister’s office did not respond to a request for comment on the OSFI reforms. However, Carney has said the government’s major projects office will play a key role in securing finance for projects on the national fast-track list.

A recent BloombergNEF report revealed that Canada’s big banks seem to be onside with the conventional-energy part of Carney’s ambition, but not so much on the clean energy side. The report shows that Canada’s major banks provided about $200 billion in fossil fuel lending and other financing in 2024, compared with about $104 billion to low-carbon energy. However, globally, in the first six months of 2025, banks and other financial institutions appear to be turning away from fossil fuels and increasing financing to renewables.

The scale of investment still not known

For now, the financial industry is non-committal on how much and what kind of investment could be financed from the OSFI reforms.

“At this point, we don’t know fully what the impacts of the OSFI changes will be on the insurance sector, but we welcome these changes and are watching with interest to understand what opportunities may exist to invest in Canada,” Stransky said.

The Canadian Bankers Association didn’t comment specifically on the OSFI reforms but in a statement said that “we can unlock growth, boost productivity and build long-term prosperity” through improvements in internal trade, infrastructure investment, financial regulation and tax policy, support for innovation, and fighting financial crime.

As the federal government’s major projects strategy names more infrastructure projects for fast-track approval, pressure will grow on Canada’s financial institutions to get on board with financing deals. It remains to be seen what mix of traditional and sustainable infrastructure and commercial deals will be made as the capital taps are loosened.

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).

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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).

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Now, with Russia waging war against Ukraine and Europe rearming its militaries, the responsible investment industry is rethinking its historic exclusion of weapons companies. There is a growing consensus among asset managers in Western nations that military investments are not only acceptable but are urgently needed for the defence of Europe.

Yet some responsible investment managers are pushing back, saying that the fundamental objection to military companies has not changed and that sustainability-focused investors have better choices for their dollars and euros. Here are some questions and answers about this remarkable turnaround on a fundamental principle of responsible investment.

It is not the mission of sustainable or ethical investors to come to the rescue of the defence industry.

– Ketan Patel, CEO, Greater Pacific Capital,

Why did early socially responsible funds object to military investments?

Pax World Fund was launched in 1971 by Luther Tyson and Jack Corbett, two United Methodist ministers and anti–Vietnam War activists. Tyson and Corbett established the fund as a vehicle for churches to avoid investing in companies manufacturing Agent Orange, napalm and other weapons for the Vietnam War. The fund became an early pioneer in the socially responsible investment (SRI) movement.

For activists who inspired these nascent SRI funds, the logic was clear: marching in protests against nuclear armaments while investing their assets in companies profiting from the Vietnam War and Cold War was simply incompatible. As “Ban the Bomb” rallies drew millions of protesters in the United States and Europe, a strict military exclusion became commonplace in the new SRI funds launched in the 1980s.

What happened to the blanket defence exclusion?

Peace protests waned with the fall of the Berlin Wall in 1989. In the 1990s, the absolute exclusion of defence companies in SRI funds gave way to a more nuanced approach.

Leading aerospace and technology companies were (and still are) active in both civilian and military production. Sustainable investment funds, as SRI came to be known in the 2000s, adopted a new policy to limit the exclusion to companies specifically manufacturing controversial weapons, including anti-personnel mines, cluster munitions and biological, chemical and nuclear weapons.

Some sustainable funds set defence thresholds, permitting investments in companies with military revenues below a certain level, such as two, five or 10% of total sales.

Where does the military exclusion stand today?

This spring, three leading European sustainable investment managers – UBS, Allianz and DWS Group – dropped their 10% thresholds for military production. Allianz and UBS also announced they would no longer exclude companies with nuclear production in their sustainable funds. Legal & General, the largest asset manager in the United Kingdom, also announced it will increase its defence industry holdings.

In addition to these recent public announcements, the industry has been quietly moving to relax its defence exclusions. Thirty-five percent of European sustainable investment funds held some exposure to defence stocks in the first quarter of 2025, an increase from 24% in the first quarter of 2021, according to Morningstar Direct.

The issue of military screens in U.S. sustainable funds has not attracted as much attention as in Europe, partly because it has been overshadowed by the heated debate on fossil fuel exclusions. However, 63% of entities issuing sustainable investments in 2024 excluded military investments from their portfolios, according to data collected by the U.S. Sustainable Investment Forum. It’s not known if this is up or down from the previous survey in 2022.

How can companies that make products for death and destruction be ‘sustainable’?

Europeans fear that Russian aggression won’t stop at Ukraine. But European defence production has lagged in recent years, and Europe has come to depend on non-European contractors, primarily from the United States, for much of its military equipment.

In response, the European Union has established the ReArm Europe initiative, a loan program to unlock private investment for Europe’s defence sector. The target is to increase European military spending by €800 billion over five years. For some proponents of environmental, social and governance (ESG) investing, the European defence buildup should be a welcome and positive choice in sustainability portfolios.

“Europe’s armaments companies deserve to be reclassified from untouchables to legitimate components of the ‘S’ in ESG,” writes Stephen Davis, a corporate governance researcher at Harvard Law School and one of the founders of the United Nations Principles for Responsible Investment. “The products they produce are deployed at least in part to ensure the most basic social good: keeping people in Europe safe and free.”

Do sustainable investment managers have misgivings about investing in tanks, F-35s and nuclear bombs?

Some ESG managers and advisers are pushing back against the headlong rush to reconcile with weapons makers.

European asset manager Candriam reaffirmed its exclusion on manufacturers of controversial weapons and is staying the course on military thresholds (10% or 3%, depending on the stringency of different funds). Candriam said it is holding the line given the complex and opaque nature of the defence industry, creating potential supply chain, corruption and human rights risks.

“The idea that weapons can only be produced and deployed in a specific conflict is naïve at best, in a world where the international arms trade services the highest bidder with little or no regard to the morals and ethics of the buyer or where the weapons will be deployed,” writes Ketan Patel, CEO of Greater Pacific Capital, an ESG impact investor in Asia and India, in an industry commentary.

On this point, KLP, Norway’s largest private pension fund, recently dropped two companies from its portfolio – U.S.-based Oshkosh and Germany-based ThyssenKrupp – because they have sold or continue to sell equipment used by the Israeli army in Gaza. KLP cited its military investment guidelines, which exclude companies selling weapons used in “serious and systematic breaches of international law.”

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Where does this leave investors who have a social or environmental focus?

For sustainability-oriented investors, it’s important to keep in the mind the European regulatory distinction between funds with sustainability characteristics (Article 8) and funds with sustainability objectives (Article 9). Investors looking for incorporation of ESG factors in a diversified portfolio and who are comfortable with some defence exposure can look to Article 8 funds. Investors looking for sustainability action on issues like climate change and a more restrictive view on defence are more likely to find these strategies in Article 9 funds.

As with all financial decisions, it’s important for investors to research individual funds to ensure consistency with their goals.

In the United States, investor advocacy group As You Sow maintains a database ranking funds for 401(k) or personal investment accounts based on defence exposure. The group also works with Corporate Knights on an annual ranking of the world’s top Clean 200 companies, which can be used as a resource for sustainability-focused stock portfolios. The list excludes major military arms manufacturers, as well as cluster munitions, nuclear weapons and civilian firearm manufacturers.

“Investors who want to support the defence industry are free to direct their capital, but it should not be the case that sustainable investors are accused of not being patriotic by failing to follow suit,” Patel writes. “It is not the mission of sustainable or ethical investors to come to the rescue of the defence industry.”

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).

The post Russia’s invasion of Ukraine has put weapons makers back in responsible investment funds appeared first on Corporate Knights.

The turnaround is dramatic. After a previous high of $922 billion in fossil financing in 2021, lending and underwriting to the industry fell to $787 billion in 2022 and then again, in 2023, to $707 billion. Last year, this downward trend reversed, and financing increased to $869 billion, according to the report, Banking on Climate Chaos (BOCC). (All figures in U.S. dollars.)

Jessye Waxman, senior adviser for sustainable finance for the U.S.-based Sierra Club, one of the report’s partner organizations, said strong oil and gas production and weak economic conditions sent fossil fuel prices lower last year, creating a need for greater external financing. At the same time, lower interest rates made it more attractive for fossil fuel companies to seek bank financing. “The fossil fuel industry is really trying to shoehorn their way in, trying to push out alternative energy sources and so are looking for external funding to help their expansion,” she said in a BOCC press briefing.

The report, prepared by the Rainforest Action Network with other climate advocacy organizations, is an annual assessment of fossil fuel financing by the world’s 65 largest banks.

The ramp-up has come at a time when the International Energy Agency (IEA) forecasts that investment in clean technologies (renewables, nuclear, grids, storage, low-emission fuels, efficiency and electrification) is on course to reach $2.2 trillion in 2025, double the investment in oil, natural gas and coal at $1.1 trillion. The increase is due to the cost advantage of green energy as well as concerns over climate change and energy security. A decade ago, fossil fuels attracted 30% more investment than clean energy, the IEA said in its annual World Energy Investment report.

Yet, 45 of the 65 banks covered in the BOCC report increased their fossil fuel financing in 2024. The United States was the largest region for fossil financing at 33% of the global total, and Canada was second largest at 15%, a reflection of the large size of the North American oil and gas industry and the close ties between the industry and the North American banks. 

JPMorgan Chase financing up 39%

JPMorgan Chase, the largest bank in the United States, was the top fossil fuel bank in the world, with $53.4 billion in oil, gas and coal financing in 2024, an increase of 39% from a year earlier. Bank of America, the second-largest fossil fuel bank, increased its fossil commitments to $46 billion, 38% more than in 2023. Third-ranked Citigroup had $44.7 billion in fossil financing, nearly 50% higher than the previous year.

Among Canadian banks, Royal Bank of Canada was ranked eighth highest at $34.3 billion in fossil fuel financing, 16% higher than in 2023. Toronto-Dominion Bank was ninth at $29 billion, 45% higher than in 2023.

Several large and expanding energy companies have consumed significant shares of the banks’ fossil financing. These include Diamondback Energy, a major Texas-based oil and gas developer, and Enbridge, a large oil transporter and North America’s largest gas utility. Three other companies are among the banks’ top five fossil fuel clients: State Grid Corporation of China, developing large coal power plants; Saudi Aramco, the largest oil producer in the world; and BP, a leading oil and gas supplier.

The report looks only at fossil fuel lending and underwriting and does not include low-carbon financing, which has also been increasing in recent years. For example, JPMorgan Chase estimates that in 2023 it provided more funding to clean energy than to oil, gas and coal, providing $1.29 in green energy for every dollar in fossil fuels.

But it’s not clear whether that ratio will increase or decrease in 2024 given the sharp rise in fossil financing last year. And even if clean energy finance improves marginally, JPMorgan Chase’s energy supply ratio (the clean-to-fossil-energy financing metric) of 1.29:1 is significantly below the 4:1 clean/fossil level that BloombergNEF has established as the level needed worldwide for the climate to stay within 1.5°C of global warming. JPMorgan did not respond to a request for comment from Corporate Knights.

No new fossil investment needed

The BOCC report authors maintain that no new oil, gas or coal financing is needed. They point to a 2021 IEA assessment that there should be no new investments in fossil fuel projects if the world is to limit global warming to 1.5°C. Recently, the IEA has revised its position, saying that new investment is needed in existing infrastructure to replace declining production but that new fossil infrastructure is still not needed.

Bank financing of fossil fuels is expected to become even more contentious in coming years. In the last six months, all major U.S. and Canadian banks have left the Net-Zero Banking Alliance, the global climate coalition. Political conditions have also changed with U.S. President Donald Trump’s call for fossil fuel companies to “drill, baby, drill” and Canadian Prime Minister Mark Carney pushing for Canada to become a clean and conventional energy superpower.

This has set the stage for a new round of oil, gas and coal expansion. The BOCC report estimates that companies engaged in fossil fuel expansion received $429 billion in 2024, an $84-billion increase from 2023 and about half the total fossil financing of $869 billion.

The BOCC authors say this expansion is reckless for global warming and increases the risk that banks will be left holding loans and bonds on declining fossil fuel assets. They are calling on regulators to require banks to establish climate plans limiting oil, gas and coal financing.

“To see the numbers jump so high just means that the financial sector is at odds with the [climate] commitments that world governments have made,” says Allison Fajans-Turner, head of bank policy for the Rainforest Action Network. “They are still prioritizing short-term profits over the long-term stability of the financial system.”

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).

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