Only two of the world’s 400 largest financial institutions have ‘robust commitments’ in place to phase out fossil fuels, new analysis from the World Benchmarking Alliance (WBA) has found.
According to the WBA’s Financial System Climate Assessment, around one third of the assessed firms have ‘initial signs of transition planning towards a low-carbon economy’, including setting metrics and targets to drive and monitor progress, or embedding transition planning within governance structures.
However, just 26% were found to have transition plans that cover financed activities, rather than focusing solely on their own operations.
Transition planning
“Repeated fossil fuel crises have starkly illustrated how vital transition planning is for global economic stability,” commented Pauliina Murphy, engagement and communications director, World Benchmarking Alliance.
“Financial institutions are central to this; their decisions on allocating capital to low-carbon solutions and phasing out fossil fuels will determine how fast the global economy can rebuild its resilience.”
Benchmark setters
The assessment reviewed banks, insurers, asset managers and pension funds and found that only ING and Zürcher Kantonalbank have demonstrated a confirmed commitment to phase out their exposure to fossil fuel markets, and ceased new financing flows in this area.
The analysis also explored whether financial institutions had short-term sectoral targets aligned with a 1.5°C pathway, and found that among those with transition plans in place, around a quarter (47) had embedded one or more short‑term climate solutions financing targets that jointly align with the pathway.
However, this pattern varies by transition type – one fifth of banks included time-bound financing targets aligned with the 1.5°C pathway, compared with less than 3% of asset managers, 10% of insurers and 7% of pension funds.
Regional variations
Regional differences were also highlighted, with Europe and Central Asia recording the highest share of institutions with transition plans covering financial activities (just over 60%), compared to 42% in East Asia and just 18% in North America.
However, even the strongest-performing region (Europe and Central Asia) remains at only a few percentage points on low carbon financing disclosure, ‘reinforcing the report’s overall conclusion that the financial system is still not reallocating capital towards low carbon solutions at the pace and scale required to support a resilient economic transition’, the WBA added.
“The building blocks for the 1.5°C pathway are increasingly in place as more institutions set plans and improve disclosure,” Murphy added.
“The opportunity now is to link transition plans to capital allocation decisions and clear policy commitments to phase out fossil fuels. As expectations from regulators, markets and stakeholders continue to evolve, financial institutions that move early to strengthen credibility and transparency will be better positioned to benefit from the transition.” Read more here.
