Five green finance questions for 2025

Happy new year. 2025 is set to be a challenging, tumultuous year for businesses and investors in the green transition — and a very busy one for journalists covering the subject. Below are five of the key questions we’ll be tracking this year. What are yours? Let us know at moralmoneyreply@ft.com. — Simon Mundy

1. How much further will green protectionism go?

At a time of severe political polarisation in the US, a crackdown on Chinese green tech imports is one of the few things that has bipartisan support. Republican and Democratic lawmakers alike want to reduce US economic reliance on a strategic rival and weaken China’s grip on global clean energy supply chains.

President Joe Biden rolled out his most recent series of restrictions on Chinese products, including solar panels and electric vehicles, last month. The incoming Trump administration is almost certain to raise these barriers still higher, as part of its push to reduce the trade deficit with China.

The EU, too, has been putting new restrictions on Chinese clean energy imports, and is likely to double down on this stance under European Commission president Ursula von der Leyen’s more right-leaning second administration. One notable new tack is a push for Chinese companies to transfer intellectual property to European businesses, in exchange for the right to operate in the EU and benefit from its subsidy regimes.

Just how far the west will go in toughening up trade rules is a crucial question. So too is how severely China’s green tech sector will be affected, and how it will respond — whether by retaliating with trade restrictions of its own, or by redoubling its efforts to grow clean tech exports to friendlier developing economies.

A still more important question is how far this lurch towards green protectionism will slow down the energy transition. A recent paper published by the Carnegie Endowment warned that, given Chinese producers’ superior scale and cost-efficiency in crucial parts of the clean energy supply chain, these trade measures “could result in a deeper and abrupt decoupling that is hugely disruptive at a critical time”.

Instead, it argued for a “clean energy détente” between the US and China, saying a healthier trading relationship would catalyse wider co-operation between China and the west, and accelerate global climate action. It’s a compelling vision — but one that only the most committed optimist would view as likely in 2025. (Simon Mundy)

2. Will international climate finance turn a corner?

Last November’s COP29 summit in Baku concluded in disappointment for developing nation representatives who had hoped for a radical expansion of international climate finance. Rich nations’ pledge to mobilise $300bn a year by 2035 fell far short of what expert estimates had deemed necessary.

Still, there is clearly growing global awareness of the need for expanded climate finance in lower-income nations. In 2025, we’ll be watching to see whether this will translate into results.

One huge question concerns the US approach under Trump, who has vowed to pull the US out of the Paris agreement and is likely to take an axe to climate-focused foreign aid. This was a factor behind other rich nations’ reluctance to make generous pledges in Baku, and much will depend on how far they’re prepared to pick up any financial slack left by Washington.

There’s also an opportunity for economies such as China and the Gulf states, which are not obliged to contribute climate finance under the Paris agreement, to build soft power by expanding the voluntary support they offer lower-income nations, notably in Africa.

With the limits of bilateral support increasingly stark, multilateral development banks — especially the World Bank Group — will be under growing pressure to show a more proactive, less risk-averse approach to catalysing private investment.

The competition among developing nation governments to attract green finance will heat up this year, whether through green bond programmes like Kenya’s or through tax and subsidy regimes that have been rolled out from Uganda to Bangladesh.

In 2024, clean energy investment reached a record $2tn, according to the International Energy Agency — yet only 15 per cent of this was spent in developing countries (excluding China), which account for two-thirds of the world’s population. This year, we’ll get a better sense of whether this imbalance can be addressed. (Simon Mundy)

3. Can insurers cover the mounting costs of climate perils?

With global warming super-charging floods, wildfires and other natural hazards, homeowners in exposed areas are struggling to find affordable insurance. Governments are incentivised to keep premiums low and to shoulder more of the risk — leaving them exposed to catastrophic events that could generate massive public liabilities, with ripple effects for markets.

Lawmakers such as US senator Sheldon Whitehouse have raised concerns that the retreat of major insurers could set off “a crash in property values” or push state insurers to seek federal bailouts.

As of December, insured losses from natural catastrophes were on track to exceed $135bn in 2024, according to Swiss Re. Two-thirds of these losses were in the US. But Europe’s insured losses from flooding, totalling $10bn, were the second-highest figure from that class of disaster that the region had ever seen. In October, devastating floods in Spain killed more than 220 people, with insured losses likely to exceed €4bn ($4.2bn), according to Morningstar estimates.

Yet there are signs that reinsurance prices, one factor behind rising consumer insurance costs, may be easing slightly. Over the past two years, reinsurers such as Munich Re have raised their pricing to levels that have raked in record profits. Their expanded balance sheets are now giving them scope to trim rates. The cost of property catastrophe reinsurance fell 8 per cent globally on January 1, when policies typically renew, according to Howden, the insurance broker.

According to a recent report by risk modelling firm Verisk, last year’s losses were actually mild by the standards of the years to come. It claimed that the world should expect an annual average of $151bn in insured losses, and much worse in bad years. This year will give new insights on how climate change is altering the risks faced by the insurance sector — and on how insurers are responding. (Lee Harris)

4. What will the AI boom mean for the clean energy landscape?

The rise of artificial intelligence was one of the biggest business stories of 2024. And AI’s voracious appetite for electricity has been one of the most significant themes in clean energy. In a landmark deal in September, Microsoft and Constellation Energy said they would reopen the Three Mile Island nuclear power plant, underscoring desperation among giant technology companies to shore up their power supplies.

In 2025, the AI challenge for electricity grids is likely to get worse.

Last month, the North American Electric Reliability Corporation, an industry watchdog, warned that AI power consumption could cause blackouts in the US and Canada during peak demand.

“Demand growth is now higher than at any point in the last two decades,” the NERC said.

Microsoft and the other technology giants play an enormous role in determining whether or not increasing AI-related electricity demand will be fulfilled by clean energy. With Donald Trump returning to the White House this month, the federal government will not be a driving force for low-carbon power. But Microsoft, Amazon, Alphabet and the other tech leaders have the deep pockets to pay for it.

Heading into 2025, one of the biggest questions in clean energy will be whether the large tech players will continue to spend on nuclear, solar and wind as the federal government shifts its focus towards fossil fuels. (Patrick Temple-West)

5. How will the anti-ESG legal backlash develop?

Sustainable investing was thrown in reverse in the US in 2024. Investor demand for environmental, social and governance (ESG) funds slowed in 2024 as Republican politicians ramped up their ESG attacks.

Shortly after Trump’s win in November, Republican-led states filed a federal antitrust lawsuit against BlackRock, State Street and Vanguard, accusing the three largest US index fund managers of using their holdings in coal producers to constrict supplies in pursuit of net zero carbon emissions goals.

This litigation will be closely watched in 2025 to see if it is successful and if it expands to other companies.

“The anti-ESG backlash movement is trying to accomplish its goals by leveraging antitrust risk, but also the perception of risk,” Drake Morgan, a counsel at Crowell & Moring, told me. “Companies may have a hard time telling those apart because the antitrust theories these accusations involve are notoriously slippery and courts haven’t provided much clarification, at least not recently,” he said.

“A few years ago, antitrust risk wasn’t as much of a focus when companies were considering their ESG policies”, Morgan said. “What we’re seeing now isn’t a course correction, so much as the evolution of risk management as enforcement priorities shift.”

Republicans have obviously set their sights on dismantling ESG and DEI (diversity, equity and inclusion) programmes. A crucial question this year will be about terminology. Will financial companies keep pursuing sustainable finance strategies using different language — or abandon them altogether? (Patrick Temple-West)

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