Transition finance represents a $9 trillion opportunity to accelerate global decarbonisation
Addleshaw Goddard the international law firm has today published a new report, Beyond Green: The Rise of Transition Finance, highlighting the critical role that transition finance is increasingly playing in supporting the global shift to a low-carbon economy. The report argues that while green finance has dominated the sustainability agenda over the past decade, the next phase of the energy transition will depend on unlocking significant investment to decarbonise the world’s most complex and high-emitting sectors.
The report identifies transition finance as a parallel and equally important pillar alongside green finance. While green finance has primarily supported projects that are already environmentally sustainable – such as renewable energy generation – transition finance focuses on funding the gradual reduction of emissions across industries that are harder to decarbonise, including heavy manufacturing, transport and industrial infrastructure.
According to the analysis, the scale of investment required to achieve global climate targets is vast. Estimates suggest that between $4 trillion and $9 trillion of investment will be needed annually to reach global net-zero emissions by 2050. In the United Kingdom alone, an additional £50–60 billion of investment per year will be required throughout the 2020s and 2030s to remain on track with national climate commitments.
Addleshaw Goddard’s report emphasises that this investment cannot come from governments alone. Private capital – including institutional investors, banks and capital markets – will play a decisive role in financing the transformation of industries and infrastructure.
Tomas Gärdfors, partner at Addleshaw Goddard and Head of the firm’s Transition Finance practice, said “Instead, it represents a parallel pillar of sustainable finance – one that focuses on financing the real-world reduction of emissions over time across every sector of the economy.”
A pragmatic approach to decarbonisation
The report argues that the debate around net-zero targets has often become polarised, with discussions dominated by ideological positions rather than practical solutions. A more pragmatic approach is required to enable meaningful progress toward decarbonisation.
While renewable energy projects such as solar and onshore wind have become increasingly mainstream, the next stage of the energy transition will require tackling emissions in sectors that are significantly harder to decarbonise. These include cement, steel, petrochemicals, aviation, heavy transport and agriculture.
Electrification of these sectors will require not only vast amounts of renewable generation but also significant upgrades to energy infrastructure. Grid expansion, high-voltage transmission networks, energy storage and stable baseload power will all be essential to support rising global energy demand.
The report also highlights the growing pressure on global energy systems as electricity consumption rises. Increasing electrification, the expansion of data centres and the rapid growth of artificial intelligence and cloud computing are all driving demand for reliable power supply. Meeting these needs while reducing emissions will require major investment in generation capacity, grid infrastructure and emerging technologies.
Small modular reactors (SMRs), energy storage solutions and cross-border transmission networks are among the technologies likely to play an important role in supporting a more resilient and low-carbon energy system.
Balancing the ‘energy trilemma’
The transition to a lower-carbon economy must also address what the report describes as the “energy trilemma” – the challenge of balancing three competing priorities: energy security, sustainability and affordability.
Achieving low-carbon energy systems often requires large upfront capital investment, which can place pressure on energy prices. At the same time, geopolitical events and supply disruptions have reinforced the importance of reliable and domestically secure energy sources.
As a result, policymakers and investors increasingly recognise that progress toward sustainability must be balanced with the need to maintain stable energy supplies and affordable pricing for consumers and businesses.
Building a credible transition finance market
Despite its growing importance, transition finance still lacks a universally agreed definition. The report notes that this lack of clarity has slowed the development of the market and created uncertainty for companies seeking to attract capital for decarbonisation projects.
However, frameworks are beginning to emerge that help classify transition activities. These range from financing borrowers that are already aligned with climate targets, to supporting those developing climate solutions, to funding the managed phase-out of high-emitting assets.
For companies seeking access to transition finance, a credible transition plan will be essential. Such plans should set clear emissions-reduction targets, identify practical steps toward decarbonisation and outline how investment and operational strategies will evolve over time.
Transparent governance, reporting and measurable performance indicators will also be necessary to give lenders and investors confidence that capital is supporting genuine emissions reductions rather than superficial sustainability claims.
Avoiding greenwashing and stranded assets
The report also highlights the importance of maintaining credibility in sustainable finance markets. Without robust transition plans and transparent disclosure, companies risk accusations of “greenwashing” – where environmental claims are exaggerated or misleading.
For lenders and investors, this creates both reputational and financial risks. Funding assets that fail to deliver credible decarbonisation outcomes could result in stranded assets or projects that become economically unviable as climate policies tighten.
An economy-wide opportunity
Ultimately, the report concludes that transition finance will be relevant across the entire economy. Rather than focusing solely on “green” projects, the next phase of climate finance must enable emissions reductions in every sector.
“With a projected investment need close to $9 trillion, decarbonisation will require new financing models and collaboration across governments, investors and industry,” added Gärdfors. “Transition finance has the potential to unlock capital at scale and drive the practical decarbonisation of the global economy.”
