Stockholm (NordSIP) – According to South Pole’s 2024/25 Net Zero report, many FIs are taking selective steps towards decarbonisation. Despite some perceived progress towards their climate goals, many financial institutions are still refusing to reduce their fossil fuel investments.
“The survey results demonstrate that financial institutions continue to back investments in green infrastructure and are willing to increase their exposure to climate-resilient assets and portfolio companies. However, it is also clear that the sector is no longer taking an active role in shifting the balance and will continue to finance fossil fuels. Financial institutions want to have their cake and eat it too,” Dr Daniel Klier, CEO of South Pole, said.
Progress Despite Varying Perceptions
South Pole surveyed 350 financial institutions across 13 countries. The survey breaks down respondents by their role, the value of assets under management and the sectors that they represent.
According to the survey, 86% of respondents say they are ‘on track’ or ‘partially on track’ to achieve net-zero emissions. However, only 52% say they are actually ‘on track’ to meet their climate goals. The extent of perceived progress varies across industries, raging 59% for investment companies, 56% for commercial banks and 43% of insurers.
It is also interesting to note that the perception of progress depends on the seniority of respondents. Although 63% of company owners believe that the company is ‘on track’ to achieving net-zero emissions, that view is only shared by 59% of C-suite executives, 49% of directors and 39% of senior managers and managers.
Having their Cake and Eating It
Financial institutions (FIs) worldwide are attempting to decarbonise, but are still reluctant to reduce their fossil fuel investments, according to a new report by South Pole, which surveyed sustainability executives from 350 financial sector firms across 13 countries.
The report reveals that nearly three-quarters (72%) of surveyed FIs have no intention of reducing their fossil fuel exposure over the next 10 years. Almost a third (27%) are choosing to make more conservative claims regarding their net zero strategy or green credentials. The report also highlights that 47% of financial institutions cite unclear regulation as a barrier to their net zero progress.
At the same time, almost half (44%) of FIs are planning to increase their exposure to green assets in the next 10 years, and nearly 80% of FIs find companies with a climate transition plan more attractive to finance. On top of this, the majority (88%) said they expect to “increase” their levels of engagement with their portfolio companies on decarbonisation in “the next two years”, with many (44%) saying they expect to increase this engagement “significantly”. The majority (86%) report to be on track or partially on track to meet net zero commitments.
“While the financiers surveyed continue to drive climate-related engagement with their clients, it also becomes clear that financial institutions have to walk a tightrope, balancing the long-term resilience and efficiency of their business against returns for investors in the short term. It is important to embrace the positive tipping points created by new, cleaner, and more competitive technologies; but the sector is running major transition and physical risks when it delays its response to obvious climate tipping points,” Klier added.
Insurance Companies Lead the Way
When it comes to decarbonisation over the next ten years, the top two priorities to financial institutions are increasing exposure to green assets (44%) and growing the number of companies with climate transition plans or net zero strategies (44%).
Only one in four financial institutions (28%) say they are planning to reduce their fossil fuel exposure as their top tactic to decarbonise over the nextten years. Insurers are substantially more likely (43%)to reduce theirfossil fuel exposure over any other kind of financial institution.
“Insurance companies have long been leaders in risk management, and the latest South Pole report shows how they are often ahead of other financial institutions in navigating the challenges of decarbonisation. Notably, the highest percentage of respondents enacting ‘more stringent decarbonisation requirements’ were from the insurance sector. This focus on sustainability is an essential risk mitigation strategy to hedge against climate-related impacts on insured assets. Those who proactively manage risk today will be better positioned for success tomorrow,” Dame Inga Beale, South Pole’s Chair of the Board concludes.
