Understanding exactly what constitutes a “climate solution” is challenging because definitions differ across frameworks and jurisdictions. Algirdas Brochard, Shafaq Ashraf, Ella Davies, Ákos Hajagos-Tóth, Valentin Jahn and Seyed Alireza Modirzadeh explain why this has important implications for investors seeking to allocate climate capital to finance the low-carbon transition.

Investors play a key role in financing activities that can reduce greenhouse gas emissions. But to limit global temperature rise to 1.5°C by 2050, average annual climate finance flows must increase fivefold from $1.46 trillion in 2022 to $8.8 trillion from 2031 to 2050. To know which activities to allocate capital to, investors need a clear understanding of what constitutes a climate solution.

This, however, is challenging due to different and sometimes conflicting definitions and taxonomies. The TPI Global Climate Transition Centre has been assessing climate solutions across multiple of its projects, gaining first-hand insight into what different definitions mean.

Two important concepts to bear in mind are “climate solutions” and “enabling activities”. “Climate solutions” are activities technologies, activities, products, or assets that drive emissions reductions in low-carbon scenarios (such as renewable electricity) and that are inherently low-carbon. “Enabling activities” are additional activities that are necessary to facilitate their deployment and expansion (such as the mining and refining of critical minerals).

Table 1. Examples of climate solutions and enabling activities

Key challenges in identifying climate solutions 

Defining climate solutions too narrowly risks preventing capital from flowing to activities essential to the transition to a low-carbon economy. But 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 and greenwashing.

Current definitions of climate solutions differ in what qualifies as a climate solution or an enabling activity. The Glasgow Financial Alliance for Net Zero 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. But 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.

And while the European Union 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, and enabling activities which make a substantial contribution to these environmental objectives and do not undermine long-term environmental goals. It also uses the term “transitional activities” for economic activities where there is currently no technologically and economically feasible low-carbon alternative.

An approach taken by China and the EU, as well as industry bodies such as the Climate Bonds Initiative and the International Capital Market Association, has been to produce taxonomies which list the specific technologies that qualify as climate solutions. Their aim is to offer a common language among market participants and steer capital flows towards net-zero-aligned and supporting activities.

But these taxonomies differ significantly in their sectoral coverage and technical screening criteria, sometimes even contradicting each other. 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, 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 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. 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 fossil fuels.

Investors need to assess whether the companies they invest in direct their capital towards climate solutions. This is difficult as definitions of what qualifies differ across frameworks and jurisdictions. However, the Energy Technology Perspectives Clean Energy Technology Guide from the International Energy Agency (IEA) offers a common 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. But political considerations can influence which technologies are included. The European Commission’s decision to include nuclear energy and natural gas in the EU taxonomy illustrates this tension. Using a global science-based framework or a regional categorisation system that reflects local context 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. So 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; the share of climate solutions or taxonomy-aligned activities in total activities; the contribution of climate solutions to overall emissions reduction targets; and 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.

Climate solutions for banks

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. They also operate across multiple sectors and regions. The role that banks play in the economy and the diversity of their activities make it challenging to assess and compare climate solutions initiatives. 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. 

To effectively evaluate banks’ actions related to climate solutions, investors need to examine the transparency and comprehensiveness with which they disclose the construction of their climate solutions targets and the impact of their climate solutions financing. As with sectoral decarbonisation targets, banks should 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; and which financial products and climate solutions fall within the scope of their climate solution targets. These issues form part of our assessment of banks using our Net Zero Banking Assessment Framework.

Making sense of climate solutions

As this blog shows greater interoperability across the taxonomies used to classify climate solutions can help investors navigate the complexities described above, especially when coupled with sector-specific lenses. We see great momentum in this direction: the International Platform on Sustainable Finance secretariat recently argued that we need greater interoperability among taxonomy frameworks to scale global transition finance in line with net-zero and this push is mirrored by Initiatives such as the Multi-jurisdiction Common Ground Taxonomy and the Super Taxonomy proposed by Brazil at COP30.

However, even with improved interoperability, establishing shared principles on the basis of which climate solutions can be defined is also important. A useful definition 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 principles that climate solutions should be technologies, activities, products, or assets that drive emissions reductions in low-carbon scenarios and that are inherently low-carbon. Enabling activities are additional activities that are necessary to facilitate their deployment and expansion.

Applying these principles 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 assess climate solutions initiatives 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.

This blog is based on Commentary: Making sense of climate solutions to help finance the low-carbon transition, published by the TPI Global Transition Centre at the London School of Economics.

This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment.   

Image credit: chuyuss provided by Shutterstock.

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