European companies spend a fifth of their capital on green and transition-based assets, according to the Platform on Sustainable Finance.
Founded to help shape the European Commission’s thinking on sustainable finance, the Platform has just published a 77-page assessment of how private capital is moving in the region.
The conclusion: large firms in the region now allocate a “material share” (21%) of their money in ways that support decarbonisation, but not enough of it is coming through equities.
“Sustainable investment in Europe continues to rely heavily on debt-based financing, with green bonds and green loans providing a significant share of identifiable sustainable finance,” the Platform writes.
While sustainable finance is maturing, more needs to be done to help it reach the places it’s really needed, it concludes.
“Green lending remains geographically concentrated, access to market-based finance varies considerably, and financing is more readily available for established green assets than for some of the industrial, technological and demand-side investments.”
Investor sentiment
According to a recent survey by Bloomberg Intelligence, investors currently see renewable energy as the most attractive sustainable investment theme, followed by energy transition and energy security.
“We surveyed about 250 investors globally, around 30% of whom were asset owners and 70% asset managers,” explains Shaheen Contractor, who co-authored the research. “All of them are involved in sustainable investment.”
More than 80% said they expect demand for sustainable investment strategies to increase over the next three to five years, while only 1% anticipated a decline.
“Client inquiries are also rising, with Europe and North America tied as the leading sources of growth,” Contractor told IPE.
Indeed, figures from Morningstar show that 2026 marked the start of a rebound for sustainable funds after years of “persistent outflows and shifting investor sentiment”.
“The rebound was driven by Europe, where investors returned to sustainable funds for the first time in nearly two years,” the firm explained in a note published in August.
Demand may be higher than what is captured in these figures, though, because of another trend emerging among European asset owners.
Contractor highlights recent signs that assets previously allocated to ESG-labelled exchange-traded funds (ETFs), or other pooled vehicles, are moving back to segregated accounts.
“The central challenge is to connect Europe’s savings with credible transition investment across companies of different sizes, financing instruments and member states, so that growing financial volumes support productive investment throughout the real economy.”
Platform on Sustainable Finance
Because those funds don’t show up in public data, such shifts can be misread as outflows from sustainable finance altogether, and reduce the official numbers.
Morningstar noted that “much” of the losses from sustainable mutual funds and ETFs in the second half of 2025 came from “large UK institutional investors who reallocated their assets from standard, off-the-shelf ESG funds to bespoke ESG segregated accounts that give them more control over how their money is invested”.
What next?
The Platform on Sustainable Finance’s report hints at a bigger issue with all the capital flowing into so-called ‘sustainable’ or ‘ESG’ funds.
Assets allocated to Article 8 and 9 funds under the Sustainable Finance Disclosure Regulation (SFDR) hit €9.6trn last year, it states, but “disclosure has increased more rapidly than portfolio alignment”.
Despite a boom in the number of SFDR-categorised funds reporting some alignment with the EU Taxonomy, average alignment at the end of last year was still just 2.3% for Article 8 funds and 8.8% for Article 9 funds — a rise of just 1pp for each. This compares with reported sustainable-investment shares of 35% and 92%, respectively.
In other words, investors are happier to call their funds sustainable than they are to allocate those funds to economic activities that officially match up with the EU’s climate goals.
Some of that misalignment is because small companies, governments and issuers outside of Europe don’t have to disclose their alignment with the Taxonomy, so it may simply not be captured in the data. But more also needs to be done to connect capital with areas where it can drive meaningful change, according to the Platform.
To tackle this, the next phase of sustainable finance regulation in Europe must seek “to turn financial depth into broader investment reach”.
“This requires a clearer and more usable Sustainable Finance Framework, completion of the SFDR review and deeper capital-market integration under the Savings and Investment Union,” it writes.
“The central challenge is to connect Europe’s savings with credible transition investment across companies of different sizes, financing instruments and member states, so that growing financial volumes support productive investment throughout the real economy.”
