The article  was first published on OMFIF on  Oct 22th, 2025.

Bob Geels is Programme Coordinator at OMFIF.

Europe’s climate investment suffers from the same-old fragmentation

Europe’s institutional investors control extraordinary resources: pension funds alone hold €10.3tn, while asset managers oversee €33.7tn. They have pioneered environmental, social and governance frameworks, set ambitious net-zero targets and proudly showcase their climate credentials at global forums.

Yet despite this scale and sophistication, Europe struggles to compete with China, whose state-led financial system channels capital into climate investment with a speed and coordination Europe cannot match. This disparity stems not from insufficient resources, but from structural coordination challenges.

China’s Development Bank alone deployed Rmb3.08tn ($433bn) in loans in 2023, around half for infrastructure development. To put that into perspective, that’s around half of the entire European Investment Bank’s 10-year climate mandate. China’s latest initiative adds another Rmb500bn ($70bn) to this already large fund in ‘policy-based financial instruments’ to crowd in long-term capital for strategic sectors such as artificial intelligence, digital infrastructure and transport, with potential leverage of up to Rmb5tn ($700bn) in following years. These mechanisms function as patient capital that treats climate infrastructure as public goods requiring decades-long investment horizons.

By contrast, European investors face fragmented rules and slow processes. The Long-term Investment Fund regulation, meant to ease cross-border investment, has struggled to operationalise amid fears of ‘lack of harmonisation’. InvestEU, an initiative aimed at mobilising strategic investment in Europe, suffers similar coordination problems as European investors must navigate conflicting tax, regulatory and governance regimes that add years to project timelines.

China has linked green with growth

Europe’s institutions certainly do retain major strengths: they set the global benchmark for ESG standards, maintain rigorous risk assessments, possess the necessary capital and technological capabilities and operate with strong accountability. But these alone cannot compensate for systemic fragmentation when competing with China’s integrated model.

One example of the coordinated nature of the Chinese approach is what Beijing calls ‘computing and power coordination’ – a policy framework treating data centres as grid stabilisation assets rather than just drains on the energy grid. This creates investment opportunities where AI infrastructure automatically qualifies for renewable energy subsidies, something European institutional investors as of now cannot access due to separate regulatory treatment of technology and energy investments.

China’s coordinated strategy creates compounding competitive advantages. Chinese renewable energy companies benefit from predictable domestic demand, standardised financing terms and integrated supply chains, including critical materials processing that European competitors cannot match. China controls over 90% of rare earth processing globally, giving them immense leverage and cost advantages over other economies hoping to compete in the digital era.

Through this coordinated approach and its competitive advantages, China has demonstrated that climate investment can drive rather than constrain economic growth. As pointed out by Li Shuo, director of the China Climate Hub, in an op-ed for the New York Times, China’s clean tech sector accounted for 40% of the country’s gross domestic product growth in 2023, illustrating that, through coordinated climate infrastructure investment, China has ‘aligned decarbonisation with its economic growth strategy’.

European fragmentation is hampering real progress

The path forward requires European institutional investors to fundamentally reconceptualise how they view the market. Currently, European climate investment operates on a country-by-country basis, much like defence spending where each nation insists on building domestic capacity regardless of efficiency.

When Italy produces superior fighter jets at better prices with existing facilities and expertise, the Netherlands still builds its own smaller, more expensive version to meet the 5% Nato target rather than directing funds to Italian production. Why? Because the investment stays in Italy, not the Netherlands. The people of Italy get trained, the government of Italy gets the tax and the factories get built in Italy, none of which directly benefits Dutch GDP.

This thinking is economically destructive. A Rotterdam-based taxpayer funding a subsidy for an Amsterdam-based company doesn’t complain because it benefits another city’s economy. But funding a Milan-based company suddenly becomes ‘money wasted’ despite delivering better results at lower cost, while keeping investment outcomes and funds within the EU.

European climate investment suffers from identical fragmentation. Each country pursues separate renewable energy strategies based on perceived national benefit rather than optimal European allocation. Some countries resist renewable investment because they won’t capture the same economic benefits as others. This misses the fundamental point: Europe should optimise for collective resilience and competitiveness, not individual GDP figures.

The lesson is clear: If European countries continue to quarrel over how to divide the spoils of the hunt while the bear slips further out of reach, there will be no bear left for Europe to claim. China hunts first and divides the spoils afterwards. One may question the fairness of this approach, but its effectiveness is undeniable, and effectiveness is precisely what Europe needs now.