Fund Managers Invest Double in Fossil Fuels Over Clean Energy

Despite Record Clean Energy Growth, Investment Funds Channel Double the Capital into Oil and Gas Projects Than Renewables

Three Key Facts

• Global fund managers invest twice as much capital in fossil fuels compared to low-carbon energy, with only 48 cents going to clean energy for every $1 invested in oil, gas, or coal assets
• Total global energy investment is expected to exceed $3 trillion in 2025, with approximately $2 trillion allocated to clean technologies and slightly over $1 trillion to fossil fuels
• Solar photovoltaic investment leads the clean energy surge, with global spending set to reach $450 billion in 2025, making it the single largest energy investment category

Introduction

Investment fund managers continue to funnel significantly more capital into fossil fuel projects than clean energy initiatives, despite growing pressure to accelerate the transition to renewable sources. New analysis reveals a stark imbalance in how global capital flows through investment products, raising concerns about the financial sector’s role in climate action.

This investment disparity occurs at a critical time when the world requires unprecedented capital deployment toward renewable energy to meet climate targets. The findings expose a fundamental disconnect between stated climate commitments and actual investment practices across the global fund management industry.

Key Developments

BloombergNEF’s comprehensive analysis of nearly 70,000 funds introduces a new measurement tool called the Energy Supply Fund-Enabled Capex Ratio (ESFR). This metric tracks capital expenditure flows from investment funds into energy assets, providing unprecedented visibility into how pooled investment products influence energy infrastructure development.

The research identifies that of $204 billion in corporate energy supply capital expenditure attributed to named investors through pooled products, the global ESFR averages 0.48 to 1. This ratio falls substantially short of the broader economy’s 1.1 to 1 investment ratio and dramatically below the 4.8 to 1 target required by 2030 under climate scenarios limiting warming to 1.5 degrees.

Large US funds tracking major indices like the S&P 500 show ESFR ratios below 0.5 to 1, while conventional energy indices demonstrate even lower ratios of 0.06 to 1. These figures reflect the continued prominence of major oil and gas companies in traditional investment portfolios, while smaller clean energy firms remain underrepresented in major indices.

Market Impact

The investment landscape shows mixed signals as global clean energy spending reaches record levels while fund managers maintain fossil fuel preferences. BloombergNEF data reveals that fossil fuel investments reached $300 billion compared to approximately $150 billion in clean energy investments through fund products.

Recent market dynamics have influenced these patterns significantly. Oil and gas price surges following Russia’s invasion of Ukraine increased fossil fuel weights in equity indices, while declining clean energy valuations amid higher interest rates and industry competition reduced renewable energy representation in portfolios.

Private infrastructure funds present a contrasting trend, with specialized players like Brookfield and BlackRock achieving ESFR ratios exceeding 1.2 to 1. These funds focus specifically on low-carbon energy assets, demonstrating that targeted investment strategies can effectively channel capital toward renewable infrastructure.

Strategic Insights

The disparity between fund investment patterns and broader economic trends highlights structural challenges in the investment management industry. While the overall economy shows improving clean energy investment ratios, traditional fund products lag behind due to their reliance on established indices weighted toward large fossil fuel companies.

Solar photovoltaic technology attracts the largest share of clean energy investment, with spending projected to reach $450 billion in 2025. Wind, storage, and electrification technologies also benefit from increased capital flows, though grid infrastructure investment remains insufficient to support renewable energy expansion.

Geographic concentration presents another strategic challenge, with nearly 85% of clean energy investment concentrated in developed economies. Emerging markets and developing economies receive only 15% of clean energy investment despite comprising two-thirds of global population and generating most future energy demand growth.

Expert Opinions and Data

Industry experts emphasize the importance of forward-looking investment metrics in driving capital allocation decisions. Ryan Loughead, research associate at BloombergNEF and lead author of the analysis, explains that “investing in low-carbon solutions is the most important role investors can play in the energy transition.” He advocates for the ESFR as “a comprehensive, forward-looking alternative to backward-looking, one-sided metrics like financed emissions.”

International Energy Agency Executive Director Dr. Fatih Birol highlights the economic fundamentals driving clean energy investment growth: “The rise in clean energy spending is underpinned by strong economics, continued cost reductions and by considerations of energy security.” He identifies the investment gap in developing economies as “the biggest fault line of reaching a clean and secure energy world.”

The data reveals concerning trends in fossil fuel investment persistence. Global upstream oil and gas investment increased 7% in 2024 to reach $570 billion, with growth predominantly driven by national oil companies in the Middle East and Asia. Clean energy investment by oil and gas companies reached only $30 billion in 2023, representing just 4% of industry capital spending.

China leads global clean energy investment with an estimated $680 billion expected in 2024, matching combined investments from the European Union and United States. This concentration reflects China’s carbon neutrality commitments and aggressive renewable energy deployment, including solar installations in 2023 equivalent to total global capacity additions in 2022.

Summary

The analysis reveals a significant misalignment between fund manager investment patterns and the capital requirements for energy transition. While global clean energy investment reaches record levels and demonstrates strong economic fundamentals, traditional investment products continue to favor fossil fuel assets through their index-based structures and established portfolio weights.

Private infrastructure funds and specialized clean energy investment vehicles show promising trends toward renewable energy focus, suggesting potential pathways for improved capital allocation. However, the concentration of clean energy investment in developed economies and the persistence of fossil fuel investment growth indicate that systemic changes in investment approaches remain necessary to support global climate objectives.