Bridging the Gap How to Finance the Net Zero Transition 2025

Foreword The financing of a lower-carbon economy is one of the defining challenges of our era. As Bill Gates argues, the energy transition will demand over $3.5 trillion in annual investments for decades. It is a challenge of unprecedented scale, requiring us not only to reimagine global supply chains and financial systems but to ensure that the frameworks underpinning them are coherent, adaptable and equitable. This paper offers a timely exploration of the transition finance gap, a critical fault line in global efforts to meet climate goals. The gap is not simply one of capital and business case, but also of public policy and frameworks, as this paper makes clear. One example: while the European Union (EU) has sought to establish leadership in defining what constitutes “green”, its green taxonomy illustrates both the ambition and the pitfalls of such an endeavour. The EU’s approach, however well- intentioned, has often been bogged down in detail and a quest for exhaustive universality. This has resulted in a framework that is, by turns, too binary, too rigid and too complex to serve as a practical guide for investors and financiers. The authors of this white paper realize only too keenly that solutions need to work not just on paper, but in the real world. As the paper emphasizes, frameworks must reflect shades of progress, capturing both the risks and opportunities that come with moving from “brown” to “green”. The provocative ideas in this paper challenge us to rethink a range of policy frameworks. They call for richer, more dynamic systems that can adapt to the evolving science, business case, markets and investor needs. The role of private capital is central to bridging the climate finance gap. Public funding, while vital, cannot meet the scale of the challenge alone. Unlocking private sector engagement will require de-risking mechanisms and a regulatory environment that is clear, consistent and credible. This is particularly true in developing economies, where the barriers to investment – high capital costs, political uncertainty and inadequate project pipelines – are most acute. Development banks will need to use all their capacities – operational, financial and technical – to maximize the total amount of financing towards climate and development goals. “Crowding in” private finance at the scale needed will require much greater and more effective use of guarantees, risk insurance and blended finance. What this paper ultimately calls for is boldness – not only in ambition but in experimentation. We need the “persistent experimentation”, as exemplified by Franklin Roosevelt’s New Deal, to find what works across jurisdictions, sectors and contexts. Transition finance, after all, is not just a technical and business challenge but a profoundly human one, requiring us to align economic incentives with societal values. I will not endorse every conclusion drawn here, but I find the arguments intriguing. This paper invites us to engage deeply with the complexities of the climate finance gap and to rethink how we define success in this space. It does not claim to have all the answers, but it offers a framework for asking the right questions – questions that will define the future of our economies, our planet and our shared aspirations.Huw van Steenis Partner and Vice Chair, Oliver Wyman; Member, World Economic Forum Global Future Council on Resilient Financial Systems Bridging the Gap: How to Finance the Net-Zero Transition January 2025 Bridging the Gap: How to Finance the Net-Zero Transition 3