Investors play a key role in financing activities that can reduce greenhouse gas (GHG) emissions. But to limit global temperature rise to 1.5°C by 2050, average annual climate finance flows must increase fivefold from US$1.46 trillion in 2022 to US$8.8 trillion from 2031 to 2050. Investors play a key role in scaling up this financing, but to do so they need a clear understanding of what climate solutions are, so that they know which activities to allocate capital to. Understanding what constitutes a climate solution is challenging due to different and sometimes conflicting definitions and taxonomies. In this context, the TPI Global Climate Transition Centre (TPI Centre), the academic partner of the Transition Pathway Initiative (TPI), has been assessing climate solutions across multiple projects, gaining first-hand insight into what different definitions mean.
To help us explore this topic, we outline two commonly used concepts that can be confusing: climate solutions and enabling activities. Broadly speaking, climate solutions are activities that directly reduce GHG emissions, such as renewable energy generation; while enabling activities do not reduce emissions themselves, but are essential to deploying climate solutions, such as the mining of critical minerals. In this commentary, we discuss how these concepts relate and the challenges they pose for investors.
Table 1. Examples of climate solutions and enabling activities Table 1. Examples of climate solutions and enabling activities.png55.96 KB
Key challenges in identifying climate solutions
Identifying climate solutions and distinguishing them from enabling activities is important, but difficult in practice. Defining climate solutions too narrowly risks preventing capital from flowing to activities essential to the transition to a low-carbon economy. Equally, including activities that are not directly linked to emissions reductions or that could be used for purposes other than emissions reductions can lead to overstated climate benefits, weaker accountability in reporting and the risk of greenwashing. It is therefore essential to have a clear distinction between climate solutions and enabling activities to avoid the misallocation of climate finance capital.
Current definitions of climate solutions take different approaches to what qualifies as a climate solution or an enabling activity. For example, the Glasgow Financial Alliance for Net Zero (GFANZ) defines climate solutions as activities that directly reduce emissions and enabling activities as those supporting the transition to a low-carbon economy, allowing for a wide range of activities to be considered. Other definitions, such as that adopted by the Global Impact Investing Framework, take a broader, investment-focused approach. This allows investors to classify their investments into mitigation technologies, carbon removals and climate enablers, with the aim of directing capital towards economy-wide decarbonisation. Finally, while the European Union (EU) taxonomy does not use the term “climate solution”, it differentiates between:
economic activities making a substantial contribution to the environmental objectives of the EU taxonomy
enabling activities which make a substantial contribution to these environmental objectives and do not lead to a lock-in of assets that undermine long-term environmental goals
transitional activities: economic activities where there is no technologically and economically feasible low-carbon alternative. These activities should not hamper the development of low-carbon alternatives or lock in carbon-intensive assets.
An approach taken by China, the EU as well as industry bodies, such as the Climate Bonds Initiative (CBI) and the International Capital Market Association (ICMA), has been to produce taxonomies which list the specific technologies that qualify as climate solutions. The aim of these climate solutions taxonomies is to offer a common language among market participants and steer capital flows towards net-zero-aligned and supporting activities. However, these taxonomies differ significantly in their sectoral coverage and technical screening criteria. They also sometimes conflict with one another, reflecting “differing national sustainable development plans and low-carbon pathways, sector focus, regulatory context, maturity of the financial sector, and immediate versus long-term use”. For example, while the EU taxonomy explicitly excludes all types of coal as an eligible economic activity, China and Indonesia have included coal in some circumstances. Some countries, such as the UK, have decided not to develop their own green taxonomy. This lack of interoperability across classifications and jurisdictions makes it difficult for investors to evaluate the claims of companies and banks regarding climate solutions.
Climate solutions for non-financial companies
Understanding what constitutes a climate solution for non-financial companies depends on their position in the value chain. For airlines, for instance, the key climate solutions are developed and produced upstream. These include aircraft and engine manufacturers designing electric or hydrogen aircraft and engines compatible with sustainable aviation fuel. It also includes fuel manufacturers producing sustainable aviation fuel (SAF) and low-carbon hydrogen. In other sectors, the position is reversed. A mining company may extract the critical minerals essential to low-carbon technologies, but the climate benefit materialises only when those minerals are incorporated into batteries, electrolysers or wind turbines further down the value chain. Finally, some companies produce climate solutions directly. This is the case for renewable energy developers that displace fossil fuel energy generation, or for electric vehicle manufacturers that replace vehicles powered by petrol or diesel fuel.
To determine whether their portfolio aligns with the transition to a low-carbon economy, investors need to assess whether the companies they invest in direct their capital towards sector-relevant climate solutions. In practice, this is difficult to assess as definitions of what qualifies as a climate solution differ across frameworks and jurisdictions. The Energy Technology Perspectives (ETP) Clean Energy Technology Guide from the International Energy Agency (IEA) can offer a basis for assessment. It is a framework containing information for 640 technologies that contribute to reducing emissions and its technology classifications directly inform IEA’s low-carbon scenario modelling. Where companies disclose alignment with a relevant local green taxonomy, this can also help develop an understanding of a company’s capital allocation to climate solutions. Local taxonomies are tailored to a region’s policy and regulatory environment and are grounded in national transition pathways, providing a contextual understanding of potential climate solutions. However, the scope of local taxonomies is not determined by scientific criteria alone: political considerations can influence which technologies are included. The European Commission’s decision to include nuclear energy and natural gas in the EU taxonomy, subsequently challenged by Austria before the EU General Court, illustrates this tension. Using a global science-based framework, such as the IEA’s ETP, or a regional categorisation system that reflects local context, such as the EU taxonomy, can both be legitimate ways to categorise climate solutions. However, categorisation systems should be interoperable, designed so that a single set of disclosures can be assessed against both local and global taxonomies.
Evaluating the deployment of climate solutions also requires a clear understanding of the magnitude and pace at which these activities are being developed and scaled up. Current reporting rarely situates disclosed activities within a measurable, time-bound and adequately resourced deployment plan. In this context, quantitative indicators can provide a more robust view of how companies are contributing to the transition. Examples include:
targeted climate solutions deployed over a given timeframe
share of climate solutions or taxonomy-aligned activities in total activities
contribution of climate solutions to overall emissions reduction targets
planned allocation of capital expenditure to climate solutions.
The TPI Centre has begun systematically assessing quantitative deployment of climate solutions on a sector-by-sector basis through the Net Zero Strategies project. To date, we have assessed the oil and gas and diversified mining sectors. We plan to expand our sector coverage in the coming years.
Climate solutions for banks
Unlike non-financial companies, banks impact the production of climate solutions indirectly through capital provision and other financial services, including corporate lending, project finance, capital markets facilitation and asset management, and they also operate across multiple sectors and regions. The systemic role that banks play in the economy and the diversity of their activities make it challenging to assess and compare climate solutions initiatives across banks. Banks currently draw on a mix of internal and external climate solutions taxonomies, arriving at unique and often substantially different views of what constitutes a climate solution. These different approaches hinder comparability across banks’ disclosures, and that is why the TPI Centre expanded its dedicated climate solutions assessments in 2025.
In order to effectively evaluate banks’ actions related to climate solutions, investors need to examine the transparency and comprehensiveness with which banks disclose the construction of their climate solutions targets and the impact of their climate solutions financing. As with sectoral decarbonisation targets, banks should fully disclose how they have set their climate solution targets. This includes outlining:
whether their definition of a climate solution aligns with external taxonomies
whether they have used climate scenarios to quantify their climate solution targets
which financial products and climate solutions fall within the scope of their climate solution targets.
Absolute financing targets reveal little about how much of its total financing and services a bank is aiming to mobilise for climate solutions. This is why, in addition to assessing whether a bank reports on its climate solutions financing and facilitation, our Net Zero Banking Assessment Framework (NZBAF) assesses whether a bank reports on the share of finance directed towards climate solutions and whether it quantifies the real economic impact of its financing and facilitation.
Making sense of climate solutions going forward
As we have seen, a useful definition of climate solutions should reflect the fact that low-carbon scenarios require the rapid scaling of specific technologies, activities, products and assets, including both climate solutions and enabling activities. At the TPI Centre, we are guided by the following principles when assessing climate solutions disclosures:
"climate solutions should be technologies, activities, products, or assets that drive emissions reductions in low-carbon scenarios (e.g., renewable electricity) and thatare inherently low-carbon. Enabling activities are additional activities that are necessary to facilitate their deployment and expansion (e.g. the mining and refining of critical minerals)."
Activities that are described as “transition-ready”, i.e., that can be transformed into a climate solution (e.g., coal power plants that are CCUS-ready) at a later point in time, are excluded from this principle.
Two developments can help investors navigate the complexities described above: sector-specific assessments and greater interoperability across the taxonomies used to classify climate solutions. Establishing principles for what constitutes a climate solution is a necessary starting point, but applying them in practice requires tools that reflect the sector-level complexity described throughout this commentary. The TPI Centre's Net Zero Strategies and Net Zero Banking Assessment Framework are contributions toward this: they assess climate solutions initiatives more granularly, reflecting the specific characteristics and transition dynamics of each sector. These frameworks also allow entities flexibility in how they pursue climate solutions, recognising that transition plans may differ depending on business models and regional contexts. However, as argued by the International Platform on Sustainable Finance (IPSF) secretariat, we need greater interoperability among taxonomy frameworks to scale global transition finance in line with net-zero. Initiatives such as the Multi-jurisdiction Common Ground Taxonomy and the Super Taxonomy proposed by Brazil at COP30 signal growing momentum in this direction. Advances on both of these fronts, sector-specific assessments and taxonomy interoperability, would strengthen investors' ability to direct capital towards climate solutions consistently across sectors and jurisdictions.
