World Bank: ESG key to unlocking $2 trln energy transition investment

04 / 10 / 2026

By Marwa Nassar - -

Some $2 trillion in investment will be needed every year until 2035 to fund the energy transition in emerging markets and developing economies, with most of the financing expected to come from private sources, according to a World Bank workshop in Vienna.

“Large-scale renewable energy and grid infrastructure requires a significant increase in capital investments,” said Verena Hagg of Austria’s Finance Ministry. “Public financing possibilities are increasingly limited, and this capital must therefore be mobilized from private commercial and institutional investors.”

Attracting that capital increasingly depends on how effectively energy projects manage environmental, social and governance (ESG) risks, from impacts on communities and biodiversity to stakeholder engagement and project governance.

These issues were at the heart of “Navigating Environmental, Social and Governance and Sustainability-linked Finance for the Energy Transition,” a workshop hosted by the Vienna Development Knowledge Center in Vienna from Sept. 15–17.

ESG, project bankability:

The workshop brought together World Bank Group experts and public- and private-sector practitioners from across Europe and Central Asia to examine how ESG risks can affect the bankability of energy projects and how they can be identified and managed throughout the project lifecycle.

“Strong environmental and social performance is a critical enabler of sustainable finance and investment, ultimately supporting energy security and resilience and accelerating the transition to a more sustainable energy future,” said Ana Cristina Sanchez Thorin of the International Finance Corporation (IFC).

Strong ESG management can help energy projects avoid unacceptable harm to people and habitats while broadening access to capital and strengthening confidence among investors, lenders and other stakeholders. It can also support more favorable financing terms, including lower bond coupon rates or longer repayment periods.

Solar project’s ESG test:

Participants explored the issue through an interactive role-play based on a fictional solar project seeking private financing to address a country’s energy needs.

The project was located in an area with vulnerable households and nomadic groups, near endangered bird nesting grounds and an important cultural heritage site. A transmission line needed to connect the plant to the grid would also pass through a densely populated area.

Would-be investors were asked whether they would finance the project.

The exercise highlighted how unresolved environmental and social risks can influence investment decisions, with participants seeking more information on biodiversity and livelihoods, project costs, alternative sites, stakeholder engagement and risk mitigation.

ESG risks can delay projects:

The cost of poor ESG management can be significant. More than 40% of infrastructure projects face delays, often due to opposition over environmental and social concerns.

Examples discussed at the workshop included projects facing resistance over the displacement of communities and flooding of cultural heritage sites, electricity transmission corridors affected by local opposition, and wind projects that drew protests over impacts on nomadic groups and birds and bats.

Environmental and social issues are often easier and less costly to address when identified during project preparation rather than after financing decisions have been made or construction has begun.

“These issues can lead to financing being cancelled, in addition to serious reputational issues for investors, sponsors and developers,” said the World Bank’s Helene Carlsson Rex. “Doing this right gets projects built on time, better financed and upholds the social license to operate.”

Aligning ESG standards:

The workshop also examined major ESG due-diligence frameworks, including the World Bank’s Environmental and Social Standards, the IFC and MIGA Performance Standards, the European Union’s Taxonomy, the UN Development Program’s Social and Environmental Standards and the Hydropower Sustainability Standard.

While the frameworks differ in terminology and specific requirements, they increasingly align around core principles such as early risk identification, meaningful stakeholder engagement, strong governance and effective mitigation planning.

The World Bank Group is also working to align its environmental and social requirements by updating the Performance Standards applied to the private sector to mirror the public-sector framework as closely as possible.

Effective ESG management, however, depends on more than standards. Governance, institutional capacity and clear accountability are also critical, with investors assessing the ability of project sponsors and developers to identify risks, implement solutions and deliver on ESG commitments throughout the project lifecycle.

“Environmental and social aspects are key to bankability,” said the World Bank’s Sanjay Srivastava. “The correct management of these aspects is critical to attract private capital, which is needed to close the energy gap.”

The fictional investors ultimately declined to commit to the solar project, underscoring the workshop’s central lesson: addressing environmental and social risks early can strengthen project outcomes, improve financing prospects and build investor confidence.