A new report by South Pole has revealed significant trends in the investment strategies of financial institutions regarding fossil fuels and green assets. The report, which surveyed 350 financial institutions across 13 countries, indicates that while nearly three-quarters (72%) have no plans to reduce their fossil fuel investments over the next decade, 44% are looking to increase their exposure to green assets.
The findings indicate a growing interest among financial institutions to engage with companies that have clear climate transition plans. Nearly 80% of respondents expressed a preference for financing such companies over those lacking defined strategies. However, the report also highlights several obstacles that financial institutions face in their pursuit of net-zero emissions.
Notably, 47% of the surveyed entities identified ambiguous regulations as a significant barrier to achieving carbon neutrality. Furthermore, approximately 27% are adopting more cautious postures regarding their net-zero strategies and environmental credentials. This suggests that many financial institutions, despite reporting they are "on track" or "partly on track" towards net-zero targets, encounter considerable challenges, particularly regarding regulatory clarity.
In Europe specifically, 58% of respondents pointed to the lack of clear industry guidance as a major impediment. Additionally, the financial institutions in Europe were more likely (52%) than their counterparts in Asia-Pacific (39%) and the Americas (40%) to cite the organisations they finance as a key reason for the slow progress towards decarbonisation.
Looking ahead, financial institutions have pinpointed two primary goals for decarbonisation over the next ten years: increasing their exposure to green assets and supporting companies with climate transition plans, with both objectives receiving backing from 44% of respondents. Contrastingly, only 28% considered reducing fossil fuel exposure to be a priority tactic in this initiative. Insurance companies exhibited a higher tendency, with 43% expressing intentions to decrease investments in fossil fuels.
Dame Inga Beale, Chair of the South Pole Board, emphasised the pivotal role insurance companies are playing in addressing the challenges of decarbonisation, noting that they are often at the forefront compared to other financial sectors. "Insurers have long been leaders in risk management,” she remarked, highlighting their proactive measures as essential for future resilience against climate-related impacts.
Daniel Klier, CEO of South Pole, acknowledged the complexities faced by financial institutions. He stated, “While the financial institutions surveyed continue to engage on climate with their clients, it is clear that they must walk a fine line, balancing the long-term resilience and efficiency of their businesses with short-term returns for investors." He reiterated the importance of embracing advancements in clean technologies while also recognising the risks posed by delaying responses to climate issues.
The report outlines 2025 as a crucial year for the transition to net zero, coinciding with the anniversary of the Paris Agreement, which is expected to present new policy and market challenges. The South Pole report provides detailed insights into how financial institutions are navigating this critical period, underscoring their dual commitment to both sustainable investment and continued financing of fossil fuel operations.
Source: Noah Wire Services