Private funding will need to be redirected from fossil fuels to clean energy for the world to be able to reach net-zero carbon dioxide (CO2) emissions by mid-century.
According to several analyses, coal power generation needs to be phased out in advanced economies by 2030 and globally by 2040, while fossil gas power generation needs to fall to very low levels globally by 2040.
Large-scale oil-fired power generation must also follow a phaseout schedule by 2040. The sale of new passenger cars with internal combustion engines needs to be phased out by 2035. Finally, investments in new fossil fuel supply need to be stopped — and not simply shifted to other countries. This is especially important for the private sector in advanced economies, which fund the majority of overseas coal finance.
Phasing out fossil fuels globally will require private finance to shift away from investing in fossil fuels toward clean energy, and instead support transition planning in high-carbon sectors. While there have been encouraging signs of investment shifts in the private sector, actions have lagged far behind the pace and scale necessary, and additional transparency will be crucial to catalyze change.
Phasing out fossil fuels makes sound investment sense. It’s estimated that investors risk losing $1.4 trillion from fossil fuel assets becoming “stranded” (devalued and unable to generate economic return), underscoring the need for the market to incorporate climate risks.
Although there is no comprehensive source of information on private financing that includes all types of financial flows, the Banking of Climate Chaos database tracks bank lending and underwriting supporting fossil fuels.
In 2022, fossil fuel support from the world’s 60 largest banks reached $673 billion, with $43 billion related to coal and $630 billion related to oil and gas. Private financing will need to decrease in line with the decline of capital investments in fossil fuels required to reach net zero. This indicator will include other types of private financing for fossil fuels once data becomes available.