Climate Finance is at a Crossroads. Can Policy and AI Help Investors Drive Real Action?

Despite years of momentum, climate finance is at crossroads. The latest UNEP report warns that we are on track for a devastating 2.6 to 3.1°C of warming—well above the 1.5°C target set by the Paris Agreement. Meanwhile, many countries have failed to submit updated Nationally Determined Contributions (NDCs) ahead of COP30 in Belém, Brazil, missing the February 2025 deadline that was meant to set the stage for more ambitious climate action. And while global targets slip, the immediate impacts of climate change are intensifying: from catastrophic floods in Europe to record-breaking wildfires across Canada and the U.S.

At the same time, climate-focused funds are underperforming fossil fuel-heavy benchmarks, investor alliances are being restructured, and policy ambitions are being reconsidered. So the question is: has climate finance actually delivered on its promise?

Meet the Experts

In this episode of Sustainability Wired, Clarity AI’s Chief Sustainability Officer Lorenzo Saa sits down with Nico Fettes, Head of Climate at Clarity AI, to unpack what’s really happening in the world of climate finance. With a background spanning JP Morgan, CDP, and government policy in both Germany and the EU, Nico brings a uniquely comprehensive view of the intersection between regulation, financial markets, and environmental science.

The conversation explores why the financial sector alone can’t “solve” climate change, and why overconfidence in market-led solutions may have hindered progress. Nico highlights the urgent need for policy reform to align incentives, the growing importance of adaptation finance, and the promise—and limits—of technologies like AI. He also discusses the foundational role of transition plans and why the 1.5°C goal must remain a North Star, despite the growing gap between ambition and action.

Importantly, Nico shares recent research conducted at Clarity AI examining how AI can support credible climate transition planning while managing its own environmental footprint. His findings shed light on how data center emissions and machine learning trade-offs can be addressed with smart design choices—a critical insight as the industry looks to scale climate tech responsibly.

For institutional investors navigating these complex dynamics, the episode offers a pragmatic roadmap: sharpen your focus on credible transition plans, push for more granular data, and understand where your influence ends and policy must begin.

Listen now to hear the full conversation.

Key Moments

00:00 – 00:54	Introduction
05:14 – 05:58	Sustainable Investing Facing Headwinds
05:59 – 08:39	Introduction to Alex Edmans
08:40 – 12:07	Why Is There a Sustainability Backlash?
12:08 – 14:01	Decoding the Research on Sustainability
14:02 – 16:12	Getting Sustainability Terms Right
16:13 – 20:50	Net Zero Targets Need a New Perspective
20:51- 24:51	Nuance vs. Black & White Thinking
24:52 – 28:48	Merit and Diversity in Hiring
28:49 – 32:00	Finding Hidden Signals of Alpha
32:01 – 35:38	Rapid fire questions
35:39 – 40:10	The Art of Sustainability
40:11	Closing commentary

Notable Quotes and Insights

In this episode, Nico Fettes shares a clear-eyed view of where climate finance is falling short—and what needs to change. From the limits of financial markets to the promise of AI in identifying credible transition plans, these four insights offer institutional investors a more grounded, practical path forward.

1. Markets Need Help from Policy

While sustainable finance has gained prominence, emissions have continued to rise, prompting hard questions about what financial markets can realistically achieve without strong policy frameworks. Nico argues that markets were never designed to prioritize long-term systemic risks like climate change.

“Financial markets probably cannot and will not save the world…Maybe we were a bit naive thinking that we could shift some of the fundamental principles of financial markets or the way they operate in their work. They are focused on making short term returns and maximizing profits. And that’s because we sort of want that from financial markets as savers and retail investors.”

2. Why 1.5°C Still Matters

As more investors question whether the 1.5°C goal is still attainable, Nico pushes back on the idea that it should be abandoned. He emphasizes that 1.5°C is not a symbolic target but a critical scientific boundary and giving up on it would risk irreversible planetary damage.

“Crossing that limit risks irreversible damage. It’s not just a goal, it’s really a boundary of planetary resilience. So, I think it’s in all of our interest to keep that 1.5 degree goal alive. And even if that means that the road to get there is probably not attainable by financial markets alone or the economy alone. It needs broad stakeholder involvement, especially policymaking.”

3. Investors Are Waking Up to Climate Risks

Investors are no longer just interested in long-term net-zero targets—they want to know how companies are managing immediate, visible risks. The growing frequency of climate shocks is driving demand for more actionable, near-term strategies.

“There is growing recognition in the face of actual short term risks that we’re all facing now and they’re more visible. Investors are looking to understand if companies have strategies to manage them.”

4. AI Can Help Sort Credible Plans from Greenwashing 

Many companies now disclose transition plans in their sustainability reports, but most still lack substance. Using AI, researchers can now analyze thousands of disclosures to assess whether companies are backing up climate targets with credible strategies. By extracting and comparing quantifiable data at scale, AI can flag which firms are taking meaningful steps and which are just talking a good game. In one analysis, Nico found that more than half of companies fail to provide any quantifiable information on their decarbonization strategies.

“We found that only 40% of the companies we analyzed actually disclose some sort of quantifiable information around their decarbonization strategies. So, more than half of the companies talk about it, but in a very loose or not very decision useful way.” 

Discover What Fast, Accurate Insights Actually Look Like

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