Financial institutions worldwide are attempting to decarbonise but are still reluctant to reduce their fossil fuel investments, leading to “financial cakeism”, according to the latest report by South Pole.
A survey of sustainability executives from 350 financial sector firms, as part of South Pole’s 2024/25 Net Zero report, found that, despite existing net zero guidance from the Glasgow Financial Alliance for Net Zero and the Science Based Targets initiative, many institutions are taking selective steps towards decarbonisation.
The report revealed nearly three-quarters (72%) of surveyed financial institutions have no intention of reducing their fossil fuel exposure over the next 10 years, while almost a third (27%) are choosing to make more conservative claims regarding their net-zero strategy or green credentials. For 47% of financial institutions surveyed, unclear regulation was a barrier to their net-zero progress.
At the same time, almost half (44%) are planning to increase their exposure to green assets over the next 10 years, and nearly 80% 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.
Dr Daniel Klier, CEO of South Pole, said: “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.”
He added: “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.”
