Yves here. It’s striking how often foundational economic development in the US has depended on manias, and we’ll soon see that green, aka sustainable, energy investment has hewed to that pattern. In the 1800s, railroad building in the US kept going despite pervasive bankruptcies, because the stock of a new line could be sold successful, producing a nice return for the builders and promoters. The dot com era did in the end produce some very valuable infrastructure and companies. But it also generated a monster bubble, and damage that extended well beyond phenomena like the death of never-evah-gonna-make-money ventures like Boo.com. Many mainstream companies bulked up to try to catch the wave and then had to retrench in a big way. McKinsey reduced its North American headcount by 50% over the next two years. There’s a strong argument that the Greenspan response to the stock market swoon, of driving real interest rates into negative terrain for over two years, played a big role in stoking the disastrous subprime bubble.
Similarly, the broad based electrification-and-related-consumer products boom produced many 1920s versions of what in the 1960s were called go-go stocks, contributing to the severity of the Great Crash.
This piece contends that since 2000s alone, there have been two green energy bubbles and busts. And the magnitude of the transition task is so large that it’s not clear how much these frothy periods have done to get closer to meeting ambitious carbon-emission-reduction goals.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
A combination of rising costs, geopolitical shifts, and a backlash—particularly in the U.S.—has led to record outflows from ESG and green energy funds.
Despite record investments in clean energy, the world remains heavily reliant on oil, gas, and even coal.
While enthusiasm for sustainable investing has waned, especially amid underperformance in clean energy, long-term prospects remain strong.
The sustainable investment bubble has burst, once again this century.
This time it was the realization that the energy transition will be a slow gradual process of coal being replaced by natural gas and renewables gaining more share of electricity generation. This realization coincided with massive recent withdrawals from sustainable funds, due to the backlash against calls for blacklisting funding for fossil fuels, especially in Trump’s America.
The most recent decline in green energy investment isn’t the first one of the 21st century. Early in the 2000s, just after the dotcom bubble burst and before the 2008 global financial crisis, there was a green investment rush on expectations that the energy transition would snowball into replacing fossil fuels soon, as Reuters Breakingviews contributor Edward Chancellor notes.
Investors were proven wrong in the 2000s, then in the 2010s, and now, in the middle of the 2020s, the sustainable investment bubble has burst once again. This followed frenzied investments in 2020 and 2021 and promises that the energy transition is so unstoppable that the world wouldn’t need investments in new oil and gas fields, as the International Energy Agency (IEA) famously said a few years ago.
The dream of a fast energy transition has clashed time and again with the reality of the world’s energy needs. After the early 2020s rush to green energy, investors and policymakers realized that any transition will be gradual and the world will still need oil and gas – and even coal – for the foreseeable future.
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The energy crisis of 2022 and the inflation spike that followed laid bare the enormous costs of going green and the slow pace of transitioning to more clean energy without taking into account the reality of what consumers really want – cheaper energy bills and reliable energy access.
With the second term in office of U.S. President Donald Trump, the backlash against green investments only became stronger.
As a result of all these factors, investors pulled record amount of money out of sustainable funds, North American banks left net-zero alliances, and Europe’s biggest oil firms scaled back their renewable energy goals and investments and returned to their core business of aiming to pump more oil and gas to meet global energy demand with reliable and affordable energy.
Moreover, policymakers and investors alike realized the price tag of the energy transition is huge, and no net-zero goals would be achievable at the current pace of annual investments in clean energy solutions.
Global investments in green energy solutions topped $2 trillion last year, for the first time ever, but the world needs to pour in $5.6 trillion each year into low-carbon energy to get on track for global net zero by 2050, in line with the Paris Agreement, BloombergNEF said in a report early this year.
Last year, green energy investments reached a record high globally, but the pace of growth has slowed from the 2021-2023 period, according to BNEF’s report Energy Transition Investment Trends 2025.
In the first quarter of 2025, geopolitical shifts and the ESG backlash led to global sustainable funds facing record outflows of $8.6 billion in Q1 2025, data by Morningstar showed.
The U.S. pullback continued for the 10th consecutive quarter, but more significant was the one in Europe, which has been the biggest sustainable funds market with consistent inflows into green investments. Europe saw net outflows in Q1, for the first time since Morningstar began tracking data in 2018.
“This perceived rollback in international alignment on sustainability, alongside evolving regulatory requirements in Europe and ongoing performance concerns—especially in clean energy—has contributed to weakening demand for ESG products,” analysts at Morningstar Sustainalytics wrote.
The current pullback will not last forever—there will always be up and down cycles, and it’s clear now that clean energy will play a major role in global energy trends and supply. Yet, the latest ESG investment decline is a cautionary tale for those who get ahead of themselves and discard the world’s continued need for fossil fuels.
