The promise of a sustainable future, powered by green energy, is a potent draw. As the world races to decarbonize, capital is flooding into renewable technologies, creating an investment landscape that appears ripe with opportunity. Yet, beneath the surface of slick marketing campaigns and ambitious projections, this sector is fraught with complexities and pitfalls. It’s not just about financial returns; it’s about ensuring your funds genuinely contribute to the energy transition, rather than simply chase speculative bubbles. Navigating this landscape demands more than just enthusiasm; it requires the understanding of underlying market trends, technological realities, and regulatory frameworks.
The global rush for decarbonization has propelled environmental considerations, particularly within the energy sector, to the forefront of financial investment strategies. While capital markets are willing to respond, analysts still observe a fundamental disconnect: many investors continue to prioritize financial returns over sustainability objectives. This trend is particularly pronounced among energy investors. Recent analysis from BloombergNEF (BNEF) underscores this imbalance, revealing that global fund managers are channeling twice as much capital into fossil fuels as into low-carbon energy supply. Specifically, for every dollar of capital expenditure investment funds worldwide directed toward fossil fuel assets—oil, natural gas, or coal—only 48 cents supported low-carbon alternatives.
Fossil fuels are hidden everywhere
This imbalance is driven by several factors. Fossil fuel weightings in equity indices have increased, largely fueled by oil and gas price surges in the wake of the Ukraine conflict. Concurrently, clean energy valuations have faced downward pressure due to rising interest rates and industry competition. Compounding these issues is the influence of ‘greenwashing.’ Aggressive marketing campaigns often misrepresent a company’s environmental impact, leading even well-intentioned investors to believe they are supporting sustainable initiatives when the underlying operations fail to align with stated environmental commitments.
Current findings from investors and asset managers underscore the pervasive nature of this issue. A European Securities and Markets Authority (ESMA) survey, for instance, unveiled that financial institutions often employ sustainable finance strategies more for marketing purposes than for actual green investments. This issue finds further emphasis from a recent probe which disclosed that European “green” funds collectively possess over $33 billion in major oil and gas companies, despite fossil fuels remaining the key driver of the climate crisis.
In the case, many investment funds have prominently employed ESG-related branding, utilizing terms like ‘sustainable’ or ‘climate’ to attract investors. A notable illustration is Robeco’s Sustainable Global Stars fund, which explicitly committed to high ESG standards, asserting it would not invest in issuers violating international norms or engaging in activities deemed harmful to society under its exclusion policy. Its stated strategy was to identify companies that not only delivered financial returns but also operated responsibly and sustainably.
Despite receiving accolades for strong financial performance in 2024, a subsequent investigation, conducted just half a year later, unveiled a contradiction: Sustainable Global Stars held $207 million in major fossil fuel companies. Alarmingly, these included entities that topped the 2023 Carbon Majors ranking for oil and gas production among shareholder-owned firms. This revelation triggered a collapse in the company’s share price in the first half of 2025, further eroding client trust and shattering the expectations of those who had invested based on the fund’s responsible investing promises.
Such instances are not isolated. The sheer volume of capital, whether knowingly or inadvertently, directed toward unsustainable energy projects remains a significant concern, often contributing to the very issues ESG branding purports to address. However, amidst the scrutiny of greenwashing, it is crucial to recognize a distinct segment of the investment market genuinely committed to sustainability. These specialized investment firms are not merely branding; they are channeling capital into impactful ventures, such as large-scale renewable energy infrastructure and pioneering circular economy initiatives. Their approach emphasizes due diligence and hands-on oversight, and ensures that invested projects not only promise but actually deliver environmental and social benefits, often tied to measurable key performance indicators.
Genuine initiatives with beneficial effects
Identifying such companies requires looking beyond mere financial statements, examining their actual project involvement. Consider Meridiam, for example, an independent investment Benefit Corporation (B Corp). Since its 2005 founding, the company has positioned itself as an asset manager focused on sustainable greenfield infrastructure designed to deliver clear benefits to local communities. This commitment is reflected in their team composition: a significant majority of senior management and the investment team possess engineering backgrounds, underscoring Meridiam’s philosophy as its primary means of delivering stakeholder value.
The fund operationalizes this approach through a strategy built on five sustainability pillars, directly aligned with the UN Sustainable Development Goals. On its way, Meridiam intentionally avoids controversial projects, opting instead for a more challenging yet more sustainable path that translates into active participation in project development. Take, for instance, a recent partnership to develop a major wind energy project in Egypt, an investment exceeding €1 billion. This endeavor is more than just a financial transaction; it’s a strategic component of Egypt’s ambitious 10-gigawatt (GW) renewables program under the energy pillar of the Nexus on Water, Food and Energy initiative, a program spearheaded by the European Bank for Reconstruction and Development (EBRD). Launched at COP27 in 2022, the initiative highlights Egypt’s strategic push for sustainable development, directly addressing national energy and resource challenges.
For investors, this project presents a compelling value proposition, largely mitigating common risks associated with large-scale infrastructure. Egypt’s commitment to green energy, coupled with a growing economy, establishes a robust and predictable demand environment. This policy stability is a critical de-risking factor, offering a stark contrast to regions grappling with regulatory uncertainty. Furthermore, the involvement of major institutional and strategic partners—such as the EBRD, Egyptian energy sector leader Hassan Allam Utilities, and Saudi group ACWA Power—enhances project economics and expertise. When combined with the global trend of decreasing renewable technology costs and increasing corporate demand for clean energy, the foundational assurances transform what might otherwise be a higher-risk proposition into a secure, high-growth asset. In turn, this positioning allows investors like Meridiam to capitalize on a burgeoning market driven by national energy transitions worldwide.
Albeit successful so far, Meridiam’s strategy highlights a crucial dynamic in energy investment: the deals in the sector are far from straightforward. The global energy transition, with its scope and complexity, presents significant challenges. And, unlike bond underwriters and traders who rely on rating agencies and liquid markets to distribute risk, green energy investors must often structure transactions and commit capital for the long term on their own.
Not everything that is green is good
This complexity presents two distinct realities. On one hand, proven, cost-effective technologies like solar and onshore wind power now offer investors a reasonable expectation of steady, decades-long payouts. Economies of scale and a boom in equipment manufacturing have driven the costs of these sources below that of fossil fuels, making them a relatively secure bet. Conversely, a more problematic segment involves investments in technologies aggressively marketed as sustainable, yet increasingly criticized. These often reveal themselves as forms of greenwashing or harbor significant, frequently overlooked, negative environmental consequences that undermine their purported “green” credentials.
A recent, high-profile investment highlights the complex realities of green energy initiatives and investments. Mubadala Capital, the asset management arm of the UAE’s sovereign wealth fund, is channeling significant funds into Brazil’s biofuels sector. Its energy company, Acelen, is slated to undertake the large-scale development of five modules, each valued at $2.7 billion, with initial production set for late 2026. The initiative aims to produce renewable diesel and sustainable aviation fuel (SAF) primarily from non-food plant feedstocks within Brazil. However, the critical question remains: will this investment genuinely contribute to global decarbonization, or does it present unforeseen environmental complexities?
Foremost among this concern is the argument that biofuel production is an energy-intensive process, potentially yielding a net energy loss. This process can trigger rising food prices, jeopardizing food security, and necessitate the conversion of forestlands for cultivation. Dr. David Pimentel, a professor of ecology and agricultural sciences at Cornell University, asserts that global resources — specifically land, water, and energy—are insufficient to support widespread biofuel production. He further pinpoints environmental issues stemming from converting crops into biofuels, including water pollution from fertilizers and pesticides, air pollution, soil erosion, and a net contribution to global warming. Thus, the investment marketed as “green” and originating from a reputable fund still reveals a less environmentally sound reality and raises a question: Do the investor truly assess the actual impact of its capital, looking beyond mere market trends—such as the burgeoning biofuel market in Brazil — to the tangible consequences of its financial decisions?
Now, getting back to the overall picture, investment in renewable energy isn’t drying up. Indeed, ESG principles continue to motivate investors globally. Yet, these capital flows remain insufficient to fully meet the demands of the green transition, while the time is running out as the climate change is happening right now. Current situation suggests private finance could play a significant role in averting the catastrophe, but the core challenge persists: discerning truly sustainable ventures from those merely capitalizing on the trend. And, ultimately, only right choices will be able to rival the clout of dirty energy and bring clean profit to investors and everyone concerned.