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.

Despite existing net zero guidance from the Glasgow Financial Alliance for Net Zero (GFANZ) and the Science Based Targets initiative (SBTi), the findings of South Pole’s 2024/25 Net Zero report indicate many FIs are taking selective steps towards decarbonisation.

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.

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.”

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.”