By Katrina White, Senior Associate, Sustainable Finance; Ryan Loughead, Associate, Sustainable Finance; Jonas Rooze, Head of Sustainability & Climate Research, and William Young, Director of Strategic Partnerships, BloombergNEF
The energy industry is shifting more of its investment into cleaner sources of supply. Bank financing for low-carbon energy supply technologies reached 89% of that for fossil fuels in 2023 – meaning that for every dollar that went to oil, natural gas and coal, 89 cents went into things like wind, solar and grids. This is our third annual assessment of those flows, taking in both the investments made by energy companies and bank-facilitated finance. Despite the improvement, the ratio isn’t evolving at the pace needed to hit the 4:1 level required this decade under commonly referenced scenarios to limit climate change to 1.5C.
- Investment in low-carbon energy surpassed fossil fuels for the first time. Real-economy investment rose from $2.1 trillion in 2022 to $2.3 trillion in 2023, making the ratio 1.11:1.
- Bank facilitated financing for fossil fuels declined. This led to a rise in 2023 for the Energy Supply Banking Ratio, or ESBR, which grew from 0.74:1 in 2022 to 0.89:1 in 2023. Changes in the way we measure finance and data gaps in China explain some of the increase in the ratio. But it also reflects an active transition in the energy system. Total bank financing slid 11% to $1.6 trillion. Within that sum, fossil-fuel financing fell 18% to $870 billion, while low-carbon retreated just 1.4% to $776 billion.
- Real-economy investment has continued to rise, while bank facilitated financing fell, particularly for fossil fuels. Financing volumes eased from $1.8 trillion in 2022 to $1.6 trillion in 2023. This reflected a few key trends that started in 2022:
- Cash flows for energy firms remained high, enabling them to pay for higher capital expenditure without financing from banks.
- Interest rates stabilized but persisted at high levels, reducing attractiveness of linked products.
- Small-scale solar – often financed by consumers and thus not covered in this methodology –continued to expand its share of low-carbon capex.
- A big caveat: Chinese firms shifted from bonds to loans in 2023 as the central bank reduced deposit reserves and prime rates. Loans are less well reported, so Chinese firms probably borrowed more than our numbers suggest. This impact artificially inflates the global ratio.
- Coal is still drawing more capital than is compatible with a 1.5C target. The ratio of coal investment to fossil fuels was 0.18:1, triple the goal. For bank-facilitated financing, it was 0.11:1. China’s banks underwrote about 66% of the $94 billion that went to coal in 2023, before even accounting for the lower transparency on loans.
Download summary report here.
For more BloombergNEF analysis on energy transition investment ratios, see Investment Requirements of a Low-Carbon World: Energy Supply Investment Ratios here. BNEF clients can access the full report here.