Financial institutions are continuing to accelerate their decarbonisation efforts, however they remain reluctant to reduce their fossil fuel investments, in what climate consultancy South Pole has described as ‘financial cakeism’.
South Pole surveyed sustainability executives from 350 financial sector firms across 13 countries in compiling its report, and found that 72% have ‘no intention’ of reducing their exposure to fossil fuels.
Just over a quarter (27%) are scaling back the scope of their net-zero claims or environmental credentials, with close to half (47%) pointing to unclear regulation as a barrier to progress.
At the same time, however, some 44% of financial institutions plan to increase their exposure to green assets over the next ten years, while 80% state that they find companies with clear transition plans to be more attractive to finance.
‘Shifting the balance’
“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,” commented Dr Daniel Klier, CEO of South Pole.
“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.”
The survey also found that a large majority (88%) expect to deepen engagement with their portfolio companies on decarbonisation within the next two years, with 44% saying they expect a ‘significant’ engagement.
Some 86% of respondents said that they are ‘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,” Klier added.
“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.”
Insurance firms
Elsewhere, Dame Inga Beale, South Pole’s chair of the board, suggested that insurance firms “have long been leaders in risk management”, with a proactive approach to decarbonisation.
“Notably, the highest percentage of respondents enacting ‘more stringent decarbonisation requirements’ were from the insurance sector,” she noted. “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.” Read more here and here.
