The European Green Transition: A Capital Shortage or a “Lack of viability”?

The EU must secure its future. In an era defined by geopolitical turmoil and the urgent challenge of climate change, the European Union  must secure its own future. This means building strong, competitive companies and mobilising massive amounts of both public and private funding to finance its security, prosperity, and resilience including reducing reliance on other countries. In this context, the Clean Industrial Deal provides the right framework with the potential to  drive growth and strengthen global competitiveness.

On July 3, 2025, the European Banking Federation (EBF) hosted a key event, “Making the Clean Industrial Deal Bankable,” in partnership with the Net Zero Banking Alliance (NZBA) and the UNEP Finance Initiative (UNEP FI). The event focused on a key question: how can we effectively accelerate capital flow towards industrial decarbonisation?

Increasing bankability of transition & the Clean Industrial Deal.”

Following this gathering, the EBF published its new report, “Increasing bankability of transition & the Clean Industrial Deal.” The report concludes  that the main challenge is not a lack of capital, but a lack of  transition projects that would be both  attractive for investors and fit for banks’ financing.  It therefore looks into solutions to  enhance the economic sense of the investments in transition, de-risk the necessary but risky projects and increase their bankability.

The Capital Paradox: Why European Savings aren’t funding the green transition

The necessary environmental transition  alone requires massive investment. While the public sector can only cover a fraction of the needs (20-25%), a significant gap remains even with the potential contribution of private financial institutions (up to 55%). This is not due to the lack of capital:  European households’ savings alone are high  and banks as well as institutional investors are looking for viable financing and investment opportunities into sustainability.

This raises a few questions: 1.) Why is capital  not being allocated where most needed? 2.) How can we channel  savings and  capital  into productive investments? 3.) How can we make sustainable projects attractive for private financing? 4.) How to address the gap that cannot be closed either by public money or private funding alone.

Neither lack of capital nor lack of will is an issue according to the report. There are a number of barriers that need to be addressed and incentives to  put in place to attract more transition projects, the following two perceived as key.

Lack of demand and profitability issue. Investors  will not  undertake projects that lack economic viability. Many transition projects, especially those with emerging technologies, have an unattractive risk-return profile and unpredictable cash flows linked to the uncertainty of the technology uptake, Due to the risk of  total loss, these projects are  also perceived as too risky for private financing without any form of public guarantees and risk sharing mechanism. Policy incentives for driving the transition to cleaner technologies or energies are still insufficient. Subsidies and price corrections have to be oriented toward green solutions. Positive impact must become cheaper than harm. Internalizing negative externalities (e.g., via carbon pricing) is essential to achieving the sustainability objectives.

The Regulatory and Administrative Maze. Europe’s regulatory as well as public financing framework is often seen as overly complex. Long  and uncertain permitting processes for large projects discourage private investors and hinder access to finance. Access to public  funding and incentive schemes is still  cumbersome with complex structures of the fragmented ecosystem, administrative requirements and due diligence.  This complexity discourages even banks and makes access to funds difficult for SMEs and individual citizens. The lack of standardisation and clarity acts as a brake on the effectiveness of capital.

These barriers – from perceived lack of profitability to systemic fragmentation – create a vicious cycle that discourages investment and makes the transition a big challenge.

The Path forward: From Barriers to Solutions

The EBF report goes beyond a diagnosis, proposing a concrete path to overcome the “bankability gap.” The banking sector is already offering tailored instruments such as green loans and advisory services. It is also focusing on blended finance, combining public and private capital to absorb risks and unlock strategic investments. However, it is also acknowledged that more tailored instruments and advice, in particular for SMEs is desirable.

All in all, to scale these efforts, the entire ecosystem must be reformed. The path forward requires a system of incentives that makes the transition an economically advantageous choice, a standardisation of blended finance products to make them more accessible and, above all, a change in mindset. Public institutions should take a bolder role in financing higher-risk projects to avoid competing with private capital for bankable projects. The transition should not be viewed as a bureaucratic obligation, but as a massive economic opportunity. To realise it, we must first cut through the red tape in our own system.

For more information:

Emanuela Manenti, Intern – Sustainable Finance Team, e.manenti@ebf.eu

Denisa Avermaete, Head of Sustainable Finance Team, d.avermaete@ebf.eu

The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The federation is committed to a thriving European economy that is underpinned by a stable, secure, and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.