Is the financial sector really moving away from fossil fuels?

Recent data suggests that 2025 may be the year Western banks and investors shift their attention from fossil fuels to clean energy – but opinions diverge on how to interpret this trend.

In early August, Bloomberg published proprietary data showing that financing from Wall Street banks to oil, gas and coal projects fell by 25% to US$73 billion in the first seven months of 2025, compared to the same period in 2024.

Morgan Stanley showed the biggest decline at 54%, while JPMorgan Chase only reduced fossil fuel financing by around 7%.

Shared on Linkedin by climate and finance expert David Carlin, the news was hailed by many as a sign that market forces are finally stronger than net zero commitments – especially as the timing of this retreat from fossil fuels finance coincides with Wall Street’s exit from the Net Zero Banking Alliance (NZBA).

“The reality is that the economics are not in favour of more oil and gas production,” said Carlin, citing the accelerating energy transition, stranded asset risks and economic uncertainty as some of the reasons for this trend.

Difficulty in getting a clear picture

But some energy industry experts suggested this information should be taken with a grain of salt, reminding others that global oil consumption continues to rise (though demand is slowing), that China’s coal plant construction reached record highs in 2024, and that Asian banks or private investment firms may very well be making up for Western financiers’ retreat.

In addition, it’s unclear which transactions were included in Bloomberg’s data: based on the report, Wall Street financing of fossil fuels in the first seven months of 2024 was around US$100 billion, but according to the Banking on Climate Chaos report, the top six Wall Street banks provided more than US$238 billion to fossil fuel companies last year.

2024 was also the first year of increase in bank financing to fossil fuels since 2021: in total, banks funnelled US$869 billion into the industry – up 23% from the previous year. This means that even with a 25% drop in US bank funding, overall fossil fuel finance could still be higher in 2025 than in 2023.

Fossil fuels vs clean energy ETFs

Perhaps a better measure of how the financial market feels about fossil fuels can be found in the performance of exchange-traded funds (ETFs), baskets of investments made up of assets such as stocks or bonds.

This year’s returns to date for the XOP oil and gas exploration ETF (which holds major positions in Exxon, Chevron and ConocoPhillips) stand at around -5%, while the iShares Global Clean Energy ETF (ICLN, which includes holdings from First Solar, vestas Wind and Iberdrola) has brought returns of 25.9% in the same timeframe. This contrasts with five-year returns to date: +136.44% for XOP, and -11.72% for ICLN.

But it confirms a trend highlighted by the Institute for Energy Economics and Financial Analysis (IEEFA): fossil fuel stocks have consistently underperformed the S&P 500 over the last 10 years. In 2024, fossil fuel stocks reported a 5.72% return, barely one-fifth of the S&P 500’s return of 25.02%.

So while it may be too soon to know whether Wall Street’s fossil fuel financing slowdown is just a dip or a long-term trend, decreasing profitability in the fossil fuel sector suggests that its attractiveness to financiers is indeed declining.

“Market forces are moving faster than politics, with capital reallocating based on risk, demand, and future competitiveness. A useful reminder that financial flows often signal where the transition is heading well before policy does,” said sustainability advocate Antonio Vizcaya Abdo in response to the Bloomberg article.