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).

The post Defying Trump, banks and investors boost renewables as they recoil from fossil fuel stocks appeared first on Corporate Knights.

The government has started to take action, but more is needed. Last week, in the fall economic statement, the federal government promised action on sustainable finance. It committed to a green and transition taxonomy (a classification system for investments) and mandatory climate-related disclosure from large private companies. It also proposed to tackle greenwashing by strengthening competition law. If done well and implemented quickly, these policy promises would make the financial sector more sustainable and help Canada reach its 2030 emission-reduction commitments.

Canada can succeed on its global climate commitments only if financial institutions move in the same direction and allocate money to climate solutions instead of climate pollution. Yet many Canadian banks, pension funds, insurers and large companies still underinvest in clean energy and disproportionately invest in oil, gas and coal. Earlier this year, Canada was recognized as a “low-regulation jurisdiction” on sustainable finance by a UN sustainable investment group.

Recent polling by conducted by Pollara Strategic Insights shows that more than two-thirds of Canadians want new rules from the government to ensure that financial institutions invest sustainably. In general, respondents to the poll said they want the long-term good of society to be prioritized over short-term profits.

In other words, Canadians have connected the dots: a safe planet means a better quality of life with less volatility and more affordability. Regulating climate finance, as esoteric as it may seem, would make investments work in people’s best interests.

Some policy-makers have stepped up to the plate.

Last year, independent Senator Rosa Galvez introduced the Climate-Aligned Finance Act (CAFA), a comprehensive legislative proposal that would align the financial system with climate action. The proposal moves beyond traditional frameworks, which consider only how the financial sector is affected by climate risk, to also tackle how investments in polluting industries can make climate change worse.

The bill is finally being debated in the Standing Senate Committee on Banking, Commerce and the Economy. Last week was the first hearing of what is expected to be a many-session study of CAFA. Independent climate experts are expected to be called to discuss why this bill is important for Canada to meet its climate commitments.

If passed, CAFA would ensure that financial institutions reduce the emission footprints of their investments and invest in climate resilience. This would bring transparent reporting and clarify which institutions are taking real climate action versus which are counterfeiting their green credentials. The bill would create a duty for leaders of financial institutions to consider – and take – climate action.

Climate finance policies like CAFA have support. More than 120 organizations, climate experts and academics endorse the bill, even writing to other senators to encourage them to support it too.

Some banks have taken issue with parts of climate-aligned financial policy, in particular with the elements that would be most effective at stymieing fossil fuel investments. But others have endorsed the bill. In support of the bill, Vancity notes that “it is imperative to transform our economy into one that protects the earth and guarantees equity for all,” and Desjardins Caisse d’économie solidaire applauds the bill for its ability to “upgrade our federal financial system in the face of climate change.”

Climate-aligned financial policy is key to spurring new green activity across the economy, meeting the best interests of Canadians and enabling Canada to succeed on its climate commitments. The key policy: credible climate transition plans should be required across the economy, in which financial institutions and large companies publish plans to reduce their investments’ emissions in line with a safe climate. To have a scientifically credible climate plan, an institution would have to show how it would reduce its investments’ emissions by half by 2030 and achieve net-zero by 2050 or sooner.

People in Canada want regulation for a more sustainable financial system that aligns with climate action. What is needed now? Quick progress on the Climate-Aligned Finance Act and for the federal government to turn its policy promises into policies.

Julie Segal is senior manager of climate finance at Environmental Defence Canada.

Melanie Snow is the federal legislative affairs specialist at Ecojustice.

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“There are some pretty ominous concerns that we’re approaching tipping points,” says Patrick DeRochie, senior manager with Shift Action for Pension Wealth and Planet Health, an educational and advocacy organization on Canadian pensions and climate.   

“Pension funds need to understand that their mandate is impossible to fulfill without a stable climate. There is no retirement security unless we have a safe climate future to retire into.” 

In a recent unpublished analysis of climate disclosures at Canada’s major pension funds provided exclusively to Corporate Knights, Shift Action found what DeRochie calls “cognitive dissonance” at many of the funds in their disregard for climate risks as global warming accelerates. 

“This speaks to a fundamental lack of climate literacy in Canada’s financial institutions, including large pension funds, where they don’t seem to grasp the catastrophic and existential nature of this problem,” DeRochie says. 

Shift Action’s findings are similar to reports released in July from Carbon Tracker, a global advocacy organization on climate and finance, and the Institute and Faculty of Actuaries (IFoA) and the University of Exeter, all based in the United Kingdom. The reports concluded that climate tipping points will soon trigger much greater economic risk than previously forecast. 

Urgent net-zero actions are required by pension administrators and trustees, argues global pensions expert Keith Ambachtsheer.  

“Scientific evidence strongly indicates that failing to do so would have material negative impact on our future ability to pay pensions, and hence constitute a clear breach of fiduciary duty,” Ambactsheer wrote in a recent newsletter. 

Unlike asset managers such as mutual funds that don’t have long-term financial obligations, pension funds are considered asset owners, and are obligated to match their assets with their long-term liabilities, namely pension payouts to their current and future retirees. This makes their investment horizon extremely long, stretching decades into the future, to ensure they have adequate assets for their payouts and to keep contributions as low as possible for current workers. 

Recognizing that climate change could pose long-term risks, many funds are now reporting under the Task Force on Climate-related Financial Disclosures (TCFD), a global voluntary framework established in 2015. Among its recommendations, TCFD advises companies and financial institutions to analyze and report their physical and transition risks under various climate scenarios such as 2°C of global warming above pre-industrial levels. (The world hit 1.5°C above those levels in July, the hottest month on record.). 

‘Cognitive dissonance’ at AIMCo

One example of “cognitive dissonance,” DeRochie says, is at AIMCo, the $158–billion manager for Alberta public pension and endowment plans. 

In its 2022 TCFD Report, AIMCo estimated that the risk to the value of its public equity and bond portfolio is higher under a 1.5°C increase in global temperatures than in 2°C and 3°C scenarios. The analysis says that 14% of its portfolio is susceptible to transition risk (arising from the shift to a low-carbon economy) under 1.5°C, compared with only 5.5% under 2°C and 0.6% at 3°C. 

This can be explained by AIMCo’s overweighting in Alberta, particularly in the oil and gas and real estate sectors that would be massively disrupted in a low-carbon transition.  

Potential losses from physical risks (economic damage from weather-related destruction), on the other hand, are estimated to be 14% of the portfolio under all three scenarios, even though the destruction to ecosystems, agriculture, business and infrastructure from extreme weather events is expected to be much more frequent and severe under the higher–temperature situations. 

“I find that shocking because I can’t imagine how AIMCo’s beneficiaries can enjoy retirement security in a world that sees global warming of three degrees,” DeRochie says. 

“There were limitations in what the model used could show in terms of physical risks,” an AIMCo spokesperson says. “We will continue to evaluate new models and tools as they evolve.”  

DeRochie’s analysis found other major pension funds that downplayed the threats of climate change or avoided discussing the risks altogether. 

PSP Investments, with assets of about $244 billion on behalf of federal public-sector pension plans, stated in its recently released 2023 TCFD Report that climate-related risk “increases at a relatively linear pace through the 2050s” under all projected scenarios of global warming, and that risks due to extreme weather-related events such as tropical cyclones and wildfires will be limited. 

There is no retirement security unless we have a safe climate future to retire into.

 

– Patrick DeRochie, senior manager with Shift Action for Pension Wealth and Planet Health

This is not in keeping with projections by climate scientists, who predict that risks will hit new and dangerous tipping points and that previous “linear” risks of extreme heat and weather will accelerate perilously. 

“PSP is vastly underestimating the systemic risks and existential nature of climate change,” DeRochie says. 

Another fund that Shift highlighted is the Investment Management Corporation of Ontario (IMCO), with assets of $73 billion on behalf of Ontario public-sector pensions and endowments. In its 2021 ESG Report, IMCO stated that its portfolio is expected to deliver a modest positive return under a 2°C rise in temperatures, a modest negative return under other scenarios, and “is well-placed to benefit from climate opportunities and mitigate losses in higher warming scenarios,” including a 3°C temperature rise. 

IMCO is demonstrating a lack of “climate literacy” by not realistically forecasting physical risks at the higher– temperature scenarios, DeRochie says. 

Shift Action also found that the Healthcare of Ontario Pension Plan, the Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan have conducted climate scenario analyses but have not publicly disclosed the results.  

Such lack of disclosure leaves plan members in the dark about the pension risks of climate change, DeRochie says, “a catastrophic crisis that is impacting their lives every day now and is putting their retirement savings at risk.” 

More dangerous climate ahead  

Pension risks due to climate change are accelerating rapidly, a situation identified in the Carbon Tracker and IFoA studies released in July. 

The reports note that the climate is entering a new and more dangerous phase in which factors such as glacial melt and faster-than-expected sea level rise will create much greater hardship and economic damage. They say that financial institutions must reflect these possibilities.  

“Tipping points must be included if scenarios are to be realistic,” the IFoA report says. “They are no longer high-impact, low-likelihood events but are now high-impact, high-likelihood, and we need to mitigate and plan for them.” 

“The vast majority of climate change economic papers are based on scientifically false assumptions,” the Carbon Tracker report says. “These assumptions drastically underestimate the damages that climate change could do to the economy.” 

The reports state that no one knows for sure how much economic damage is ahead since there is no past data to draw on for guidance.  

But the IFoA report offers a preliminary answer to that question by plotting curves based on temperature rise and destruction of gross domestic product (GDP). It’s important to understand that this is not a prediction; it’s a scenario based on assumed economic destruction. 

But imagining the unimaginable – total destruction of the economy at 6°C temperature rise – the IFoA analysis suggests that even a 3°C temperature rise would destroy approximately 30% of the GDP, far higher than pension funds are contemplating. 

DeRochie says such a distressing scenario should cause pension funds not just to provide better risk estimates of their assets, but to ramp up their efforts to decarbonize their portfolios and publicly urge government action to reach net-zero.  

“You would think with such a massive threat to their portfolio and to the security of our national retirement funds, they would be making much bigger efforts to ensure that we do stay within safe climate limits,” he says. “Their mandates will become impossible to fulfill if they allow these terrifying global– warming scenarios to come to fruition.”  

Eugene Ellmen is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association). He writes on sustainable business and finance. 

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Fortunately, taxpayers won’t have to pick up the whole tab. The International Energy Agency, a policy think tank in Paris run by the world’s energy ministers, says the zero-carbon shift can be funded mainly by investors. A new IEA study finds that publicly traded renewable-energy companies are already outperforming fossil-fuel stocks – without exposing investors to additional risk.

The study, produced with the Centre for Climate Finance & Investment (CCFI) at London’s Imperial College Business School, compared the five- and 10-year investment performance of 545 oil, natural-gas and coal producers in 55 countries against a portfolio of 208 renewable-energy and equipment companies from 34 countries.

The result: in advanced economies, renewable power delivered a 10-year total return of 727%, compared to just 31.6% for fossil fuel companies. In riskier emerging markets and developing countries, the renewable companies still delivered, posting a 10-year return of 136%, versus 113.8% for fossil fuel firms.

The study also found that renewable-power portfolios are less driven by broader market trends than fossil fuel portfolios, a good sign for investors seeking diversification. It also discovered that renewable companies showed greater resilience when oil prices tumbled in 2014 and during the pandemic shock of early 2020.

“Overall, our analysis demonstrates a superior risk and returns profile for renewable power in both normal market conditions and amidst recent events,” notes the report, entitled Clean Energy Investing: Global Comparison of Investment Returns. The authors hope their findings will encourage investors and policy-makers alike to boost demand for renewable projects, in the confidence that the cleantech revolution is well underway.

CCFI executive director Charles Donovan noted there’s nothing new about the positive performance of renewable energy stocks – we just need decision-makers to pay attention. “It’s been the same story for more than a decade, yet total investment is still lagging,” he said in March on the report’s release. “National regulators, particularly in the United States, must get to work on the reforms needed to level the playing field for clean-energy investors.”

IEA official Tim Gould noted that showcasing the investment heft of clean energy is an important step in mobilizing international capital. “But much more still needs to be done to link sources of sustainable finance with the areas of greatest need, especially in emerging markets and developing economies.”

The report breaks new ground in demonstrating clean energy’s performance in developing markets, where clean energy faces greater uncertainty and higher costs of capital. But because all our futures depend so much on decisions now being made in China, the report also studied the performance of Chinese companies alone. The news is good: over 10 years, China’s portfolio of 105 fossil fuel companies offered investors a 41.1% return, while its 74 renewable-power companies delivered a 243% return.

The authors admit their report just scratches the surface of the clean energy sector; 90% of clean power is produced by non-listed organizations or by diversified companies that are not primarily energy producers. But that’s not a flaw, it’s a future. The study “points to the untapped potential of the listed capital markets as a source of funding for pure-play renewables companies and their investments.”

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