Climate Finance Opportunities in 2025
Weather-driven disasters will spur urgency for businesses and investors to leverage technology for environmental solutions.
Supporting environmental sustainability involves more than mitigating the climate crisis and adapting to increasing instances of extreme weather caused by rising global temperatures. However, this article focuses specifically on the need — and opportunities — for the private sector to finance and scale climate tech innovations.
In a world where policy consensus is elusive, the next chapter in climate finance will be defined not by what governments fail to do, but by what businesses, investors, and communities achieve together.
The negative impacts of climate change are accelerating, but so, too, are the solutions, which are many times driven by startups and social entrepreneurs. In 2025, we expect that:
- Adaptation and Resilience Will Take Center Stage
- AI Will Drive Climate Solutions
- Clean Energy Solutions Will Co-exist with Fossil Fuels (at least for now)
2024: A Year of Setbacks and New Realities
U.S. Election: Deregulation on the Horizon
Trump’s return to the White House signals a retreat from federal climate initiatives. His administration is poised to dismantle many pro-climate policies — undercutting environmental agencies, scaling back climate finance, and likely withdrawing from the Paris Agreement. Regulatory uncertainty looms large, and recent attempts to enhance climate disclosures face near-certain shelving. Yet even in this uncertain environment, private-sector innovation and market forces may still drive positive climate action — just as they did during Trump’s first term.
COP29: Big Promises, Mixed Results
Meanwhile, world leaders gathered for the 29th time at the U.N.’s annual Conference of the Parties (COP) meetings to coordinate global responses to the climate crisis. Dubbed the “Finance COP”, COP29 was held in Azerbaijan in November. There, attendees agreed upon a New Collective Quantified Goal (NCQG) of $300 billion annually by 2035 to support developing countries. Although this figure triples previous commitments, it remains well below the $500 billion to $1 trillion range that some advocates demanded. The lack of clarity on public versus private funding — and on grants versus loans — raises fears of mounting debt in poorer nations.
Also at COP29, carbon market rules under Article 6 of the Paris Agreement finally saw resolution, promising future funding streams but still lacking the guardrails to prevent double-counting and greenwashing. The loss and damage fund, fully operationalized at COP29, secured $731 million against a $100 billion annual need.
Corporations Retreat from ESG and DEI — At Least Publicly
Far-right Republicans continue to inaccurately lump the DEI (Diversity, Equity, and Inclusion) and ESG (Environmental, Social, & Governance) acronyms into negatively portrayed “woke” corporate initiatives. Consequently, companies are reversing efforts to diversify their workforce and reduce negative environmental impacts, even when these strategies have proven to be good for both communities and the planet.
As the political landscape shifts, the U.S. Securities and Exchange Commission’s climate disclosure rules may stall. These weakened U.S. standards contrast with stricter European mandates, such as the EU’s Corporate Sustainability Reporting Directive. But even global giants like Coca-Cola now plan to reduce their recycling and emissions pledges. Still many companies continue to quietly implement their commitments to ESG initiatives, and many investors continue to prioritize funding ESG strategies.
Opportunities for Progress
Distance from ESG, Focus on Solutions
However, the so-called “ESG backlash” may have a silver lining as it has helped to clarify the distinction between risk-screening ESG frameworks and true impact investing. Impact investments, defined by the GIIN’s State of the Market 2024, are those made with the “intention to generate positive, measurable social and environmental impact alongside a financial return, and specifically use that investment capital along with engagement or investment terms to positively influence targeted impact results.”
Investors increasingly recognize that impact strategies target real-world outcomes rather than box-ticking exercises. While ESG often excludes higher-risk regions and transition sectors, impact investing seeks to finance the solutions these areas need most. As pressure mounts to demonstrate tangible climate benefits, we may see a pivot from vague ESG commitments to more direct and purposeful impact investments that support climate-positive solutions like the transition to clean energy and reduction of carbon emissions.
Private-Sector Leads Innovation
With governments retreating, the private sector has the opportunity to fill the void in climate finance and profit from doing so. According to a report released in November by leading environmental nonprofit CDP, global companies see a combined $5 trillion opportunity in climate action. From AI-driven solutions to late-stage funding for scalable technologies, businesses and investors can lead the charge in addressing climate challenges.
Perhaps Doug Burgum, current North Dakota Governor and Trump’s pick for Interior Department lead, said it best in a July 2023 interview:
“Well, I know the climate is changing, we know that. And I’ll tell you in North Dakota, we’re the only state that set a goal of being carbon neutral by 2030. But we’re not doing it with a bunch of regulations. We said we can get there through no new mandates, no new regulations, all through innovation.”
What’s Next: Funding in 2025
Adaptation and Resilience Take Center Stage
With climate impacts intensifying, 2025 will likely see stronger investor interest in adaptation and resilience solutions. A recently released PWC report found that in 2024, nearly 30% of climate-tech deals backed startups focused on solutions to mitigate extreme weather, a share projected to grow in the coming year. Major financial institutions — including JPMorgan Chase, Nuveen, and Wellington — are integrating adaptation themes into their climate portfolios.
AI-Driven Climate Solutions
Artificial intelligence stands out as a powerful driver of efficiency and productivity in climate tech. Funding for AI-enabled climate ventures surged in 2024. The same PWC report found that climate tech startups built around AI raised $1 billion more in the first three quarters of 2024 than they did in all of 2023. Investors expect these tools to improve forecasting, optimize energy grids, and streamline carbon accounting in 2025. This aligns well with a market environment that demands clear pathways to profitability and scale.
Energy Duality: Fossil Fuels and Clean Energy
Despite lofty rhetoric, the global energy system will remain a blend of fossil fuels and clean energy, at least in the near term. COP29’s focus on fossil fuel phase-outs fizzled amidst ever-increasing global energy demands. Still, clean energy investment rose in 2024–35% of climate-tech deals targeted energy startups — and that momentum will likely continue into 2025, boosted by market forces and investor interest, if not by policy mandates.
Conclusion: Finding Opportunity in Uncertainty
The coming year’s climate finance landscape looks messy: weakened U.S. leadership, lukewarm international commitments, and corporate retreats on environmental sustainability commitments.
But these shifts also create opportunities. Impact investors can step into the regulatory void, finance real-world solutions, and leverage innovation — particularly AI — to scale climate action. Adaptation and resilience will become the new watchwords, as private sector actors rise to fill gaps left by governments and as climate-driven disasters spur urgent demand for tangible results. In a world where policy consensus is elusive, the next chapter in climate finance will be defined not by what governments fail to do, but by what businesses, investors, and communities achieve together.
Sources
StartingUpGood leverages innovative technologies to advance our mission, enabling our small team to maximize our impact. We also encourage the social entrepreneurs we support to adopt similar approaches. We identify, curate, and summarize top resources in our focus areas using proprietary technology, AI, and large language models (LLMs). All content is meticulously curated and quality-checked by our team.
Below are the sources referenced in this article, accompanied by bulleted summaries generated through LLMs. For comprehensive insights, we recommend reading the full articles.
What Trump’s Cabinet Picks and Advisers Say About Climate Change | NY Times
- The Trump administration is expected to dismantle environmental protections and prioritize fossil fuel extraction, sharply diverging from Biden’s climate-forward policies.
- Cabinet members exhibit varying stances on climate change, with some acknowledging its existence but minimizing urgency, while others deny the role of human activity.
- Policies will likely favor deregulation and rollbacks of climate initiatives, facilitating short-term economic benefits at environmental costs.
- The administration’s stance undermines global climate leadership, potentially stalling progress in international emissions reduction.
- Figures like Elon Musk express mixed messages, promoting sustainable energy in theory while downplaying immediate transitions.
Impact investors could find a place in the next Trump administration, if only the impact weren’t so negative | ImpactAlpha (paywall)
- Despite a challenging climate for ESG initiatives, impact investing retains potential in areas aligned with bipartisan economic priorities like small business development and Opportunity Zones.
- The administration’s anti-ESG rhetoric and policies could exacerbate inequality and weaken systemic sustainability efforts.
- Private-sector-led climate tech and social impact projects may fill gaps left by reduced federal support.
- Impact investing could pivot to tackle affordability, housing, and employment challenges, avoiding reliance on governmental initiatives.
- The hostile political landscape for sustainability initiatives poses risks but also creates urgency for innovative, scalable solutions.
What Trump’s Second Term Could Mean for DEI | HBR
- DEI initiatives are expected to face significant backlash, with anti-DEI executive orders, litigation, and policy rollbacks on the agenda.
- Companies will need to choose between adopting local norms, maintaining internal DEI policies, or advocating for systemic change.
- The federal government will likely reduce funding and support for DEI programs, making corporate and local leadership pivotal.
- Organizations must embed DEI deeply into their values and practices to withstand external pressures and remain effective.
- Advocates face challenges balancing progress on inclusion with maintaining operational alignment in hostile political climates.
Lessons for Sustainability Investing from the 2024 Election | Forbes
- Emissions reporting is losing prominence as a climate-change mitigation strategy, with calls for carbon taxes to drive meaningful reductions.
- Policy fragmentation, especially across U.S. states, hampers cohesive climate action, underscoring the importance of bipartisan solutions.
- Sustainability efforts must integrate pragmatic financial models to attract broader support while shielding vulnerable populations.
- Political shifts necessitate private-sector leadership in climate adaptation, resilience, and sustainable energy projects.
- Clear, measurable, and actionable frameworks are essential for advancing sustainability in a divided political environment.
How to Get More Impact into Investing | Financial Times
- Impact investing, distinct from ESG, focuses on creating tangible societal or environmental benefits while delivering financial returns.
- Misconceptions about impact investing as inherently concessionary hinder its adoption in mainstream financial markets.
- Authentic, mission-aligned, and well-communicated impact strategies are critical for consumer and investor trust.
- Transitioning from private to public markets could help scale impact investing, though challenges in measurement and perception remain.
- Impact investing must better integrate with mainstream investing practices to maximize influence and scalability.
Trump May Thwart Federal Climate Action, but Opportunities for Progress Remain | World Resources Institute
- Federal climate policies are expected to stall or regress, with Trump likely rolling back environmental protections and reallocating funds to high-carbon activities.
- The administration’s stance threatens U.S. emission-reduction targets, global climate agreements, and environmental justice initiatives.
- Subnational actors like states, cities, and businesses are expected to take the lead in climate action, maintaining momentum despite federal resistance.
- Bipartisan support remains for clean energy innovation, with potential economic and security benefits fostering progress even under federal inaction.
- Grassroots and localized efforts will play a critical role in sustaining climate action amidst federal rollbacks.
State of Climate Tech 2024: Seeking an edge as deal-making slows | PWC
- Climate tech funding dropped 29% in 2024 but retained resilience in the U.S. due to policy measures like the Inflation Reduction Act.
- Investment shifted towards later-stage deals and more disciplined financial strategies as the market matured.
- AI-powered climate solutions gained momentum, attracting increased funding for their potential to drive efficiency across sectors.
- Adaptation and resilience technologies featured prominently, accounting for 28% of climate tech deals.
- Established corporations are playing a significant role in scaling climate tech through venture capital involvement and support for emerging solutions.
Key Outcomes from COP29: Unpacking the New Global Climate Finance Goal and Beyond | World Resources Institute
- COP29 set a new climate finance goal of $300 billion annually by 2035, triple the previous target but still far below the $1.3 trillion estimated as necessary.
- Developing nations criticized the agreement for lacking sufficient funding commitments and failing to address systemic inequities in climate finance.
- Progress was made in mobilizing private-sector contributions, but ambiguity around grants versus loans and accessibility remains a concern.
- The conference reaffirmed a collective commitment to global climate action, despite insufficient ambition in fossil fuel transition goals.
- A roadmap for scaling climate finance to $1.3 trillion by COP30 in 2025 aims to address funding gaps.
Making Sense of the COP29 Outcome | Financial Times
- COP29 highlighted deep divides between developed and developing nations, with criticisms over insufficient funding and inequitable agreements.
- The $300 billion annual goal was seen as inadequate given the scale of climate challenges and responsibilities of wealthier nations.
- Accelerating private-sector involvement and catalytic public finance are critical to achieving the necessary scale of climate funding.
- Tensions over accountability and differentiated responsibilities between high- and low-emission nations remained central.
- Looking ahead to COP30, there is an urgent need for more ambitious commitments to align climate finance with global needs.
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Disclaimer: This article uses various LLMs to research, edit, and proof-read. All content for the article was hand-curated and checked for quality.
