Making finance flows consistent with climate goals

Under the Paris Agreement, countries around the world committed to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. This commitment serves as a key driver for mobilising finance, supporting the urgent economic transformation needed to achieve the Paris Agreement objectives while pursuing sustainable development.

This report by the European Commission provides an overview of the current international context, as well as the policies and measures already in place in the EU to align finance flows with the Paris Agreement. The report demonstrates the EU’s commitment to fully implementing the Paris Agreement, including the goal embedded in its Article 2.1c on climate finance. It also highlights the challenges and opportunities faced by EU governments, businesses and financial institutions, while laying the foundation for a political reflection on how this critical effort could be further strengthened, both in the EU and globally.

To enhance the alignment of finance flows with global climate objectives and improve the mobilisation of climate finance, the EU engages with its international partners. For instance, together with Argentina, Canada, Chile, China, India, Kenya and Morocco (additional countries have now joined), the EU launched the International Platform on Sustainable Finance. The Platform aims to scale up the mobilisation of private capital for environmentally sustainable investment. In addition, the High-Level Expert Group (HLEG) on scaling up sustainable finance in low- and middle-income countries (LMICs) was set up in 2022 to identify challenges and opportunities related to sustainable finance in those countries. In April 2024, the HLEG prepared a report to provide recommendations on this topic to the European Commission.

Furthermore, the EU’s Sustainable Finance Framework supports the alignment of finance flows with the ambitious climate policies of the European Green Deal and the objectives set by the European Climate Law. The EU has also taken significant steps to make sure a significant part of the EU budget contributes to climate action.

European Climate Law-aligned EU sectoral decarbonisation pathways

The European Climate Law sets a legally binding framework for the EU to achieve climate neutrality by 2050, with intermediate targets along the way. Through corporate transition plans, companies can demonstrate how they contribute to the EU climate targets, while minimising associated risks and maximising business opportunities. Sectoral decarbonisation pathways help bridge the gap between company-level actions and economy-wide climate targets. These pathways can support companies’ efforts to develop robust Climate Law-aligned transition plans helping to ease reporting.

In 2025, the Commission contracted a study to develop European Climate Law-aligned EU sectoral decarbonisation pathways for 24 sectors. The pathways aim to support the creation of credible transition plans, set emission reduction targets that are compatible with the European Climate Law, and identify decarbonisation levers to achieve the targets. They can also be useful for financial institutions in assessing corporates’ plans. 

These pathways aim to reduce administrative burden. Jointly with the guidance document, they offer a voluntary, science-based framework that integrates EU climate targets with existing sustainability reporting requirements. This approach is expected to both simplify sustainability reporting for companies and investors and enhance comparability and transparency across markets. The initiative aligns with the Commission’s efforts for streamlined reporting obligations and improved coherence in the EU’s sustainable finance framework.

These EU pathways complement existing initiatives guiding the transition for organisations. They integrate quantitative information and reference the distinct Transition pathways for European industrial ecosystems. The Climate Law-aligned pathways and guidance focus on providing specific quantitative input rather than general guidelines, also by referencing established standards.

The Commission study was presented at the Industrial Forum, Task Force on Transition Pathways, an Expert Group of DG Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) on 12 November 2025. The event served to exchange with participants on the results of the study and how these can be of use to companies’ transition planning. It also gathered perspectives and best practices on the role of sectoral pathways from stakeholders with expertise in credible transition plans and transition finance, including institutional investors, Member States, and EU companies. The documents from the study are available for download below.