Four big transitions in energy, technology, demographics and geopolitics will require unprecedented levels of investment and smarter methods of funding. The first article of The Year Ahead 2027 report focuses on how financial investment in some specific sectors will shape the upcoming years.

Over the next five years, around €50 trillion will be required to finance the transition to clean energy, the development of artificial intelligence, the effects of population ageing and higher levels of strategic security. However, given the financing sources currently available and their expected growth rate, there could be a financing gap of around €30 trillion. That is the equivalent of more than half of global pension fund assets or twice the total deposits held by households and firms in the eurozone.

We estimate around €35 trillion of climate financing is required between now and 2030 to mitigate the effects of global warming and fund adaptations to the new environmental situation. Despite investment rising, a gap of €22-€26 trillion remains.

“Four big transitions in energy, technology, demographics and geopolitics will require around €30 trillion during the next five years. That is the equivalent of more than half of global pension fund assets or twice the total deposits held by households and firms in the eurozone”

In the other hand, most of the investment in Artificial Intelligence (AI) is in physical infrastructure: data centres, chips, electricity grids, fibre, cooling and storage. We estimate that adding models, applications, connectivity, data and digital capabilities, creates an AI financing requirement of around €10 trillion up to 2030. That leaves a gap of around €2.5-€4 trillion, and that is before the higher energy requirements of data centres are factored in.

The impact of population ageing is not a large, one-off cost. Instead, it represents a persistent fiscal pressure requiring increased expenditure on pensions, healthcare and long-term care. Our estimate of required spending is based solely on the incremental pressure associated with demographic change: around €3.2 trillion in the years to 2030, with a gap of €1.3-€3 trillion.

If the new geopolitical environment pushes defence spending towards 3% of GDP, or even 3.5%, we calculate the bill for rearmament, modernisation and strategic resilience will be around €4.7 trillion by 2030. Added to this are non-military investment needs in semiconductors, critical minerals, batteries, cybersecurity, critical infrastructure, strategic reserves and supply chains.
 

“Banks have a key role to play in structuring projects, distributing risks, mobilising deposits and supporting companies”

Meanwhile, fragmentation of what had previously been a highly interconnected world economy into competing trade blocs could create a permanent loss of 2.3% of global GDP, according to the International Monetary Fund. Severe financial fragmentation could generate output losses of up to €4.9 trillion in one year, says the World Economic Forum.

The scale of the total investment required to meet these challenges exceeds the capacity of public budgets, so funding these transitions will require public-private collaboration models. Banks have a key role to play in structuring projects, distributing risks, mobilising deposits and supporting companies.

Despite the huge sums required, the world has the savings, technology and institutional capacity to finance these transformations. However, the emphasis must shift to achieving alignment on incentives and working out how to invest in a smarter, more timely way.