Five themes shaping 2026 | ~5 min read

Theme 2: Transition financing - set for a transformational year?

Matt Christensen

16/01/2026

The second of our five themes for 2026 explores the heightened interest in transition finance and its potential across the energy sector and beyond.

Several factors are propelling the concept of transition financing into the mainstream. Evolving regulation, investor interest and a pressing economic imperative for future-proof solutions are among the main factors. Energy transition – now an established investment theme – offers a blueprint for transition. Meanwhile policymakers and regulators alongside industry and finance in most regions recognise the urgency of mitigating climate impacts – presenting opportunities for climate transition solutions.

We believe the scene is set for a transformational year for transition finance, led by momentum in the energy transition which reaches across the spectrum from traditionally carbon-intensive sources – those that are moving towards lower carbon emissions – to innovative low-carbon solutions, as illustrated in our paper on energy transition.

The breadth of opportunities in the energy sector point towards the potential of transition financing to become an asset class. Global investment in energy transition topped USD 2 trillion in 2024 for the first
time¹ and by mid-year 2025 new renewable energy development had attracted a record USD 386 billion in global investment.² Additionally, the world’s largest energy transition private fund recently closed at USD 20 billion. ³

Furthermore, in late 2025 we saw transition finance being formally carved out from green finance in the fixed income markets, with several publications providing constructive market guidance and principles. ⁴

To build on this momentum we expect progress in key areas:

Planning for transition: Determining how best to motivate the style and scale of finance necessary to prepare for future climate, planetary and social scenarios will be aided by lessons learnt in the last five years from fluctuating sustainable finance flows. Credible transition plans require recognition of different starting points and pathways, and should incorporate specific regional or sector considerations.
Defining transition: The current focus is on climate, environment and mitigation but there is confusion among stakeholders over how increasingly used terms like “adaptation” and “resilience” connect with transition finance. Clients ask us how transition finance reaches into biodiversity and social factors and while there may not be a near-term expansion of the definition of transition finance, regulatory clarity will be helpful in identifying new investment opportunities.

The investment potential in transition finance is substantial. Bloomberg NEF estimates that USD 8.4 trillion in annual climate mitigation finance is needed by 2030 according to the World Economic Forum, while innovations in financing structures, like blended finance, have demonstrated the ability to scale up transition financing. The SFDR 2.0 framework proposal to designate Article 7 as a transition fund category could well provide a further springboard for transition finance in 2026.

¹ BloombergNEF, Global Investment in the Energy Transition Exceeded $2 Trillion for the First Time in 2024 | BloombergNEF, January 2025
² BloombergNEF, Global Renewable Energy Investment Still Reaches New Record as Investors Reassess Risks | BloombergNEF, August 2026
³ Brookfield, Brookfield Raises $20 billion for Record Transition Fund, October 2025
⁴ Example publications: ICMA Climate Transition Bond Guidelines, APLMA Guide to Transition Loans, and the IEA’s Scaling Up Transition Finance.

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