The sustainable finance market continued to grow in 2024, with sustainable assets under management reaching $2.5 trillion, and sustainable bond issuance surpassing $9.2 trillion.[1] At the same time, we observed heightened scrutiny and increased politicization of ESG. Last year’s edition of this report focused on themes related to transparency and credibility, including the use of more precise language to describe sustainability initiatives, a need for pragmatic solutions to accelerate real-economy decarbonization, and jurisdictional adoption of sustainability-related disclosure requirements. We believe these themes will remain in focus for 2025, and in this year’s report, we identify five additional themes that reflect the ongoing evolution of the sustainable finance market:
- A complex and evolving landscape of corporate climate action
- Artificial intelligence as a net positive for decarbonization
- Innovative financing mechanisms for climate solutions
- Amplified physical climate risks resulting in real economy impacts
- A focus on responsible and sustainable supply chains
A complex and evolving landscape of corporate climate action
Tailwinds Indicate Direction of Travel
As we kick off 2025, the following trends give us reasons for optimism about the long-term direction of corporate climate action:
- Growth of capital pools with sustainability mandates – Despite the choppiness of sustainable fund flows in 2024, sustainable investing growth persisted, largely driven by Europe. The percentage of asset owners with more than half of their total assets reflecting ESG considerations rose from 29% in 2022 to 35% in 2024.[2]In addition, more than two thirds of asset owners believe ESG has become more material, driven by improved understanding of the linkage with company performance, increased action by regulators, and higher levels of ESG awareness among investors and issuers.[3]While regional nuances exist, the overarching trend indicates continued growth in sustainable investing in 2025.
- Climate change as an economic opportunity – As many companies struggle to meet interim decarbonization targets, the business opportunity associated with providing climate solutions grows. 45% of US public companies, representing $8 trillion in market capitalization, have mentioned developing or selling climate solutions in 10-K filings. [4] This is up from 20% in 2005. We believe that companies across all sectors, including materials, consumer goods, technology, and transportation, will continue to capitalize on this commercial opportunity.
- Improvements in data quality and availability –In last year’s report, we anticipated momentum in the adoption of mandatory disclosures driven by the release of the International Sustainability Standards Board (ISSB) inaugural standards, IFRS S1 & S2. There are now over 24 jurisdictions globally that have adopted the standards with more expected in 2025. We believe that standardized disclosures and requirements for external assurance will improve the quality, consistency, and comparability of ESG data. This will help expand and enhance the integration of ESG factors in investment decision making, a top 2025 priority identified by over half of the investors surveyed in RBCCM’s most recent Global ESG Fixed Income Survey.
Headwinds Complicate Ambition
Despite these tailwinds, the current sustainability landscape has become increasingly complex, with external factors challenging companies’ ability to act and make progress in the short-term.
- A difficult macroeconomic backdrop – The 2024 global election super-cycle has resulted in heightened policy uncertainty. This, combined with inflation fears and public markets volatility, has caused some C-suites to focus more on shorter term financial and operational stability rather than longer term sustainability goals, with 29% of CFOs indicating that capital investment into sustainability had decreased over the past 12 months.[5]
- Scope 3 emissions – Managing Scope 3 emissions, which represent the lion’s share of emissions across multiple sectors, presents significant challenges due to poor data quality and availability, supply chain complexity, limited control, and double counting risk, among other factors. 54% of companies have indicated that Scope 3 is the largest barrier to setting net zero targets.[6]
- Perceived legal and reputational risk – 2024 saw a rise of legal and reputational risk associated with overstating or understating sustainability initiatives. Companies are contending with conflicting signals from politicians and regulators across global jurisdictions. The fragmented landscape, coupled with heightened scrutiny, has led to more greenhushing, as many companies choose to remain silent for fear of being criticized or accused of greenwashing, or worse, breaking the law.
Given the dynamic and evolving sustainability landscape, we expect companies to take an increasingly pragmatic approach, emphasizing long-term economic value creation and alignment of sustainability initiatives with core business activities. With 2025 interim emissions reduction targets coming due for 11% of the top 2000 public companies globally[7], we also expect more transparency and insights into the challenges faced, the progress achieved, and the lessons learned in pursuit of emissions reductions and target setting.
Artificial intelligence as a net positive for decarbonization
Data center energy consumption, driven by the rise of artificial intelligence (AI), is expected to account for approximately 10% of global electricity demand growth through 2030, with data center capacity doubling over the next five years.[8,9]And yet many large technology companies, including the hyperscalers, have some of the most ambitious corporate climate commitments. Over 85% of technology companies in the G2000 have set emissions reduction targets, and nearly 50% have set full net-zero targets covering Scopes 1 through Scope 3.[10]
Carbon Reduction Targets by the Technology Sector (Within the G2000)
For these companies, addressing data center emissions, either directly or indirectly, is essential to achieving their decarbonization commitments. To do so, we expect the technology sector to focus on two key levers: 1) scaling alternative low carbon sources of electricity and 2) investing in carbon removal solutions.
Both actions will benefit the broader economy by reducing the emissions intensity of data centers and the electricity grid, while supporting the commercialization of decarbonization technologies.
Scaling Alternative Low Carbon Sources of Electricity
At COP 28, 20 major countries pledged to triple nuclear energy generation capacity by 2050 and are including nuclear as a key part of their energy strategies.[11] Meanwhile, sustainable finance market participants have increasingly recognized nuclear energy as ‘green’, with Bruce Power, Ontario Power Generation, Électricité de France, and Oglethorpe Power all issuing Green Bonds to fund nuclear energy generation. We expect to see heightened focus on nuclear energy as a solution to the data center power conundrum, both in the context of large-scale generation assets as well as small modular reactors (SMRs). SMRs are particularly well-positioned, though not expected to be fully commercial until the 2030s.
Renewable energy corporate power purchase agreements (PPAs) are also on the rise, with demand from hyperscalers, who pioneered this mechanism to procure low carbon energy, driving this trend. The surge in corporate PPAs has played an important role in boosting the uptake of renewable energy globally. Meanwhile, other energy solutions, such as geothermal, are starting to get attention from the same big hyperscalers in their ongoing quest to secure low carbon electricity.
Investing in Carbon Removal Solutions
In addition to fueling a surge in low carbon power, AI will also likely increase demand for gas-fired power. More broadly, hydrocarbons are expected to play a role in the global energy system for years to come. This is why carbon dioxide removal (CDR) solutions will also be needed at scale.
The technology sector is playing a key role in funding and commercializing engineered CDR solutions, which are still nascent and cost prohibitive. Advanced market commitments that aim to accelerate the development of carbon removal technologies, such as Frontier, whose founding members include Stripe, Google, Shopify, and Meta, act as guaranteed offtake. This stimulates investment, establishes liquidity for carbon credits, and drives long-term market stability. As with the scaling of alternative low carbon energy sources, we anticipate the rest of the economy will benefit from the scaled investments the tech sector is making.
RBC’s Partnership with Deep Sky

In November 2024, RBC and Microsoft signed an agreement to purchase carbon removal credits from Deep Sky. Deep Sky is a Canadian carbon removal project developer that intends to facilitate the removal of 10,000 tonnes of CO2 from the atmosphere over a 10-year period via Deep Sky Alpha, the world's first carbon removal innovation and commercialization center. To start, eight Direct Air Capture (DAC) technologies will be deployed and tested side-by-side at Deep Sky Alpha.
AI’s Role in Cross-Sector Emissions Reductions
Finally, by driving energy and resource efficiency, AI will play an important role in emissions reduction across other sectors, including manufacturing, agriculture, buildings and construction, transportation and logistics, and energy generation and distribution. AI applications across these sectors have the potential to help mitigate 5-10% of global emissions by 2030.[12]
Increased adoption of innovative financing mechanisms for climate solutions
Private Markets Play a Key Role
While macroeconomic headwinds and weaker deal activity resulted in a 14% decrease to $30 billion in climate venture and growth investment in 2024, we believe private markets will continue to play a key role in the climate finance ecosystem. $47 billion in new capital was allocated to climate GPs across early stage through growth in 2024, rebounding from 2023 levels, and the proportion of LPs with an interest in climate tech is up to 86% in 2024 from 60% in 2018.[13,14]Looking forward, we see more LPs allocating both nominally and as a percentage of their portfolios, with private markets assets under management expected to grow more than 2x the rate of public assets.[15]
RBC’s $1B Climate Commitment
In 2024, RBC set a new goal to allocate $1 billion by 2030 to support the development and scaling of innovative climate solutions by investing in growth equity and venture capital funds, as well as directly in companies. Since 2022, RBC has committed over $140 million to climate funds and companies.
Compared to “CleanTech 1.0” in the 2000s, we view the climate investing context today as more resilient due to greater global policy alignment, acute awareness of climate impacts, and technological advancements. With $86 billion of dry powder across venture capital, growth equity, private equity, and infrastructure, we observe a sharper focus on funding companies and projects with fundamentally-sound business models that are profitable net of subsidies.[16]
Blended Finance Unlocks Additional Capital
Given the trillions of dollars needed per year to finance and scale climate solutions, mobilizing capital remains a top priority. Increased collaboration through blended finance structures that use catalytic capital from public or philanthropic sources can advance ‘additionality’ for new solutions.
In Canada, for example, the C$15 billion Canada Growth Fund will continue to catalyze private sector investment in low carbon businesses and projects using mechanisms such as carbon contracts for difference (CCfDs), grants and loan guarantees, and traditional equity investments. Other loan guarantee programs, including Canada Development Investment Corporation’s (CDEV) Indigenous Loan Guarantee Program and Canada Infrastructure Bank’s Indigenous Equity Initiative (IEI) will enable Indigenous communities to purchase equity stakes in energy, natural resources, and infrastructure projects. This collaboration is crucial for Canada’s transition to net zero, which will rely heavily on sources of capital held or unlocked by Indigenous nations and is essential to ensuring a just transition.[17]
In the US, the Inflation Reduction Act (IRA) has seen over $94bn in clean tech manufacturing announcements since bill inception.[18] With 60% of those announcements in Republican congressional districts, a full repeal of the IRA will be difficult. However, all IRA tax credits are on the table as Republicans consider the 2025 tax code and seek to offset the cost of extending the original Trump tax cuts that expire at the end of the year.[19]
For the European Union, implementation of the €1 trillion Green Deal Industrialization Plan will be critical in supporting renewable energy and supply chain decarbonization, through a more relaxed framework on subsidies and tax breaks for member states.
Globally, governments continue to advance decarbonization efforts, driven by commitments, pledges, and binding laws at the subnational, national, and international level. Updated Nationally Determined Contributions detailing countries' intended climate actions through 2035 are due in February 2025 and will result in continued focus on decarbonization levers that flow down to the capital deployment level, further mobilizing the private sector.
Optimism in the Carbon Markets
The carbon markets play a crucial role in achieving net zero emissions.
In the US, compliance carbon markets are pursuant to state law and have withstood challenges from the first Trump Administration, making them a difficult target, especially as the recent overturning of the Chevron doctrine further limits a federal agency’s ability to litigate or block state-level carbon market regimes. Decreased federal funding and policy could result in new state level carbon markets and a further reliance on existing compliance programs to meet climate targets.
The EU Emissions Trading System (ETS), the largest in the world, is set to expand under the ETS 2, which will add buildings, road transport and small industries into the program for the first time. The EU Carbon Border Adjustment Mechanism will also come into force in 2026, leveeing the EU’s carbon price on all imports of goods already covered by the EU ETS.
Anticipated political changes in Canada will result in some forms of carbon pricing being repealed, however, it is broadly expected that industrial carbon pricing, which encompasses existing compliance carbon markets in Canada, will remain.
For the voluntary carbon market, key challenges persist but hope is on the horizon:
- Supply-side standards, such as the ICVCM, are coming into effect at scale and will help address some of the market’s trust and credibility concerns.
- Clarity on demand-side standards (i.e. how corporates can credibly utilize offsets in their net-zero strategies) such as the SBTi’s guidance on the use of environmental attributes, is also expected by late 2025.
- International alignment on a global carbon market, the Paris Agreement Crediting Mechanism (PACM), was achieved at COP29 and will set the stage for large-scale investments in carbon projects by countries and the private sector.
- Carbon project insurance is emerging as a novel but crucial innovation, boosting liquidity and scalability.
With increased clarity, trust, global mechanisms, and demand, 2025 is shaping up to be a promising year for carbon markets.
Sustainable Bond Issuance is Expected to Grow
In 2025, the issuance of green, social, sustainable, and sustainability-linked bonds is expected to exceed USD 1 trillion, supported by a more favorable interest-rate environment and investor demand for sustainable investments.[20]
Globally, green bonds had a record year in 2024, and we anticipate more green issuances in 2025 following the release of ICMA’s Green Enabling Projects Guidance last June. This widens the opportunity for green bond issuance to industries such as mining, construction, and chemicals, sectors that have historically struggled to identify eligible green projects.
The large index and taxonomy providers, such as MSCI and the Climate Bonds Initiative (CBI), have announced support and are signaling that green enabling activities will be permitted for index inclusion. We believe the convergence of these factors – ICMA guidance, clarity from index providers, and investor demand – will position the green bond market for further growth in 2025.
Amplified physical climate risks resulting in real economy impacts
Storms, wildfires, floods, droughts, and record temperatures are impacting people around the world. 2024 set a record for the hottest year and the first calendar year to exceed the Paris Agreement’s 1.5°C target.[21] We also experienced some particularly extreme weather events in 2024, including hurricanes Beryl, Helene, and Milton in the US, and catastrophic flooding in Spain. At the time of publishing this report, the Los Angeles wildfires are ongoing and estimated to become the costliest wildfires ever.
As the number of $1 billion disasters continues to rise, and impacts to the real economy mount, we observe select sectors responding to the increased physical risks of climate change.
Sector Spotlight: Insurance
Climate change is altering the risk landscape and adding complexity to the property insurance sector’s fundamental business model: pricing risk. The concern is twofold. First, claims management could stress insurers and reduce financial stability. Twelve major insurers in California have restricted new homeowners’ policies because of climate concerns. The consequences of the recent Los Angeles wildfires may further aggravate this situation. Globally, insured losses from natural disasters have topped $100 billion in each of the past three years.[22] Second, providers that continue to underwrite are raising premiums and reducing product availability, impacting consumers.
Solutions such as catastrophe bonds serve to transfer risk from underwriters to investors and are increasingly linked to adaptation and resilience strategies such as coastal flood control and protection. Other solutions, such as increased adoption of AI-enabled geospatial intelligence enable insurers to better assess and underwrite risk.
One thing is clear, even as more solutions become available to help address physical climate risk challenges, insurance affordability and availability will continue to be impacted in the years to come.
Sector Spotlight: Utilities
For utilities and grid operators, the intensity and severity of extreme weather events are leading to an increased focus on resilience. Grid hardening is poised to be a central focus for utilities and the broader energy sector in 2025, supported by investment in infrastructure upgrades, smart grid technology, distributed energy resources and virtual power plants, and predictive mitigation. An increasing number of utilities are utilizing sustainable debt to fund resilience and recovery expenditures.[23] We view this as a continuing trend in 2025, further supporting the growth of the green bond market.
Sector Spotlight: Real Assets
For real asset portfolios, climate risk can be existential. Acute physical risks can destroy property and infrastructure, while chronic physical risks can slowly erode portfolio value. Either way, real asset operators and owners are increasingly focusing on strengthening resilience to these risks.
REITs, for example, are incorporating climate adaptation measures and physical risk assessments into their portfolios. In 2025 and beyond, access to capital may be constrained by the climate performance and risk of the asset. State and city regulators, such as California and Vancouver, are tightening rules around embodied carbon in building permits and disclosure.
Municipal infrastructure investments and planning, as with New York’s Metropolitan Transportation Authority and the Port Authority of New York & New Jersey, are increasingly evaluated using resilience frameworks and financed with green bonds.[24,25] Increased data standardization and availability among real asset operators, lenders, insurers, and rating agencies will enable better analytics and funding for climate resilience.
The most successful organizations will be those that proactively assess and address climate risk and integrate resilience measures and sustainable finance opportunities into their strategies.
A focus on responsible and sustainable supply chains
Supply chains have resurged as a top risk to businesses globally, and we expect 2025 will see more corporates leaning into supplier engagement programs, with responsible business practices, human rights, and resiliency as key focus areas.
As mentioned in our first theme, Scope 3 emissions management and reporting are a challenge for supply chains. Given that companies typically receive emissions data from only 26% of suppliers, pending regulatory requirements such as the California Climate Disclosure rules and the Corporate Sustainability Reporting Directive (CSRD) in Europe may help improve data quality and availability across the value chain.[26,27]
Further improvements in data quality and availability may be driven by an uptick in technology solutions to improve supply chain management, including AI, digital twins that simulate real-world assets, and Internet of Things (IoT) devices to track, monitor and increase transparency. These solutions will enable better decision making and improve sustainability outcomes.
With regards to human rights, concerns around modern slavery have grown significantly for countries, companies, and civil society over the last several years. The modern slavery regulatory landscape is now undergoing a significant shift, driven by stricter enforcement actions and enhanced reporting requirements. Jurisdictions like the EU are moving ahead with legislation such as the Corporate Sustainability Due Diligence Directive (CSDDD), mandating human rights and environmental due diligence. Regions like Australia and the UK are updating their modern slavery acts to increase accountability via penalties for non-compliance. Other countries, like Germany, have recently implemented supply chain due diligence legislation, and Canada plans to follow suit.
In the US, compliance with the Uyghur Forced Labor Prevention Act (UFPLA) and avoidance supply chain bottlenecks are essential, as over $3 billion worth of goods have been seized.
These regulatory expectations are becoming more granular, requiring companies to conduct detailed risk assessment and disclose specific actions taken. Reporting frameworks are expanding to include disclosures on supplier due diligence, remediation, and implementation. Navigating this cross-geographical web of regulation is key for global companies, as non-compliance increasingly carries reputational, legal, and financial risk.
Closing Thoughts: What’s Next for Sustainable Finance?
The themes outlined in this report – evolving corporate climate action, AI and decarbonization, innovative financing for climate solutions, rising physical climate risks, and sustainable supply chains – will present material risks and opportunities to corporates, investors, and governments alike in 2025 and beyond.
RBC Capital Markets’ Sustainable Finance Group provides practical advice and solutions to help clients navigate this increasingly complex and dynamic landscape. Our multidisciplinary team takes a differentiated approach by combining global best practices with local insights. We also help clients take meaningful steps to decarbonize their operations and proactively manage their transition risks by offering carbon markets and renewable energy solutions.