As the world races to address the climate crisis and achieve the Sustainable Development Goals, the way we fund innovation has never been more crucial. Today’s landscape is defined by a confluence of forces—abundant climate capital, evolving financing instruments, and urgent global pressures—all converging to shape the future of sustainable breakthroughs.

Innovators, investors, and policymakers must understand these dynamics to harness opportunities and overcome barriers. By embracing new models and deploying resources strategically, we can accelerate the next generation of low-carbon solutions, drive equitable growth, and safeguard our planet for future generations.

1. The Changing Landscape of Sustainable Finance

Global climate finance volumes have soared in recent years, driven by an unprecedented influx of private capital. Between 2021 and 2023, investments grew by 26% per year on average, illustrating the urgency and promise of sustainability agendas.

In 2023, private climate finance surpassed USD 1 trillion for the first time, overtaking public flows. Yet despite this milestone, access to affordable capital remains uneven, especially in emerging markets and developing economies (EMDEs). Mitigation finance dominates the mix, with USD 1,780 billion directed toward emission-reducing projects, while adaptation receives just USD 65 billion. Dual-benefit initiatives are catching up, but still account for only USD 58 billion.

International climate finance to EMDEs reached USD 196 billion in 2023, 78% of which came from public actors. This underscores the vital role of blended structures—guarantees, catalytic equity, grants—to de-risk private investment and unlock new flows.

2. Breakthrough Technologies and Capital Innovation

While equity funding peaked at USD 49.4 billion in H1 2022, by H1 2025 it had fallen to USD 23.5 billion, reflecting a consolidation into fewer, larger deals. Deal volume contracted by nearly 50%, signaling a market pivot toward scale and resilience over sheer proliferation.

This shift is mirrored by the rise of non-dilutive capital. Debt and grants accounted for USD 20.4 billion in H1 2025, with combined figures projected at USD 32.1 billion by year end. This trend indicates a more mature ecosystem where companies tap instruments tied to cash flows and performance metrics.

Non-dilutive funds are channeling resources into both established and emerging sectors:

• Energy and transport infrastructure ready for deployment
• Circular economy projects closing material loops
• Hydrogen production and distribution scale-up
• Sustainable aviation fuel and low-carbon cement innovation

In 2025, strategic alignment between technology stage and capital type will define winners. Equity will back early-stage breakthroughs—advanced materials, AI-driven climate analytics—while debt and grants will finance infrastructure-heavy, revenue-generating solutions in hard-to-abate sectors.

3. ESG Investing and Market Dynamics

Sustainable investing has moved from niche to mainstream. In H1 2025, sustainable funds outperformed traditional peers, delivering a median return of 12.5% versus 9.2%. This marks the strongest period of outperformance since 2019, reinforcing the business case for integrating environmental and social criteria.

ESG assets under management are projected to reach USD 33.9 trillion by 2026, exceeding 20% of global AUM. Yet around 30% of investors report difficulty finding high-quality ESG products, revealing gaps in transparency and thematic depth.

Key corporate and consumer drivers are propelling demand:

• 90% of S&P 500 companies publish ESG reports, signaling mainstream corporate commitment
• 83% of consumers believe firms should proactively shape sustainability best practices
• A positive link between strong ESG performance and financial returns

These trends create openings for innovative financial products—green bonds, sustainability-linked loans, thematic ETFs—that deliver both impact and attractive risk-adjusted returns.

4. Mobilizing Science, Policy, and Global Goals

The broader science and innovation context shapes the pace of progress. The WIPO Global Innovation Index 2025 notes that R&D investment growth slowed to 2.9% in 2024, the weakest expansion since 2010. This slowdown constrains the pool of cutting-edge ideas available to tackle climate challenges.

Nevertheless, leading innovation ecosystems—Switzerland, Sweden, the United States, the Republic of Korea, and Singapore—continue to excel. Their policy support, IP intensity, and robust public-private partnerships position them as hubs for sustainable breakthroughs.

Mission-oriented innovation policies at the OECD level emphasize the role of public R&D and targeted regulation in catalyzing private capital. Combined with the US Inflation Reduction Act and CHIPS and Science Act, these frameworks create powerful incentives for domestic clean energy and advanced manufacturing.

5. Path Forward: Practical Steps for Stakeholders

To translate capital into impact, stakeholders must adapt their strategies and tools. Here are actionable recommendations:

• Early-stage innovators should develop robust business models that demonstrate clear revenue pathways, attracting both equity and non-dilutive financing.
• Investors can deploy blended instruments—combining grants, guarantees, and equity—to lower risk and mobilize private flows into underfunded regions.
• Policymakers must refine mission-oriented frameworks, aligning public R&D grants and tax incentives with global net-zero targets.
• Financial institutions should enhance ESG product transparency and thematic depth, tapping demand for specialized, impact-oriented offerings.

By integrating these approaches, we can bridge gaps—from capital availability in EMDEs to financing infrastructure-heavy technologies—and pave the way for a resilient, inclusive green economy.

The moment for sustainable innovation is now. Urgent climate realities, coupled with a historic pool of aligned capital, create an unparalleled opportunity. When we deploy resources strategically—matching capital types to technology stages, scaling catalytic structures, and reinforcing policy tailwinds—we spark the breakthroughs that will define our collective future.

Let us embrace collaboration across sectors and borders, leverage new financing models, and commit to practical, measurable action. Together, we can fund the next breakthroughs that deliver prosperity, equity, and a thriving planet.