Read the 2022 update to this report

The last few years have seen financial institutions making headlines with bold net zero announcements, which is a key step towards achieving needed investments. As of the release of this report, overall assets committed to net zero now exceed USD 93 trillion. This is tremendous progress compared to several years ago. In 2019, when the Net Zero Asset Owner Alliance launched, it represented less than USD 4 trillion of assets and further progress is expected in the run-up to COP26. Given how complex decarbonizing the global real economy will be, these commitment announcements are the first step to understanding what this transition will entail, and they often raise additional questions:

• Are these goals truly aligned with a credible net zero path?
• What details are behind the headline commitments?
• Is progress being made to achieve these aspirations?
• How do these commitments compare to the broader financial industry and real economy?
• Are financial institutions doing as much as they should?

As part of a broader effort CPI is undertaking to understand the integrity of net zero and increase its accountability, we conducted a thorough tracking and analysis exercise of public commitments to address climate change from more than 350 private financial actors across four financial sectors (asset owner, asset manager, commercial bank, insurer). We focused on institutions that have committed to net zero emissions by 2050 or are otherwise systemically important actors.

In order to conduct this review, we developed a new commitment taxonomy, covered in detail in the Methodology and taxonomy section, that captures details of the scope of a financial actor’s actions and potential paths to affect climate change. The four categories of commitments include:

• mitigation targets,
• investment goals,
• exclusions and divestment, and
• new business practices.

We based the taxonomy on commitments companies have made, consultation with stakeholders, and a literature review.

Using these tools, we created a dataset summarizing available information on commitments to date (see the downloads section on the left side of this page) and can be used by policymakers and the financial sectors to set goals, collaborate on progress, and report going forward. We recommend that this becomes a living reference point, tracking progress towards existing goals and putting future commitments in context, and should be combined with other efforts focusing on specific companies, countries, or sectors.

Our findings from reviewing this commitments database show:

• At least 301 major financial institutions—representing USD 93.3 trillion worth of financial assets—have committed to net zero by 2050 at the latest. 2021, in particular, has seen unprecedented growth in net zero commitments: 65% of global assets under management and 17% of global financial assets are now covered by a 2050 net zero commitment.

Region	Financial Institutions Committed to Net Zero	Assets Committed to Net Zero (USD billion)
Total	301	$  93,310
Western Europe	181	$ 44,267
US & Canada	62	$ 40,291
East Asia and Pacific	15	$ 7,006
Latin America & Caribbean	11	$ 817
Other Oceania	7	$ 574
Middle East and North Africa	1	$ 24
Others	5	$ 74
Unknown	19	$ 257

• Through August 2021, financial institutions have made 45% more commitments than in all of 2020, driven by dramatic growth in mitigation targets. EU-27 institutions have made the most number of commitments overall, potentially due to the size of the market and overall support for sustainable policies, followed by the US and UK. These policies include the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which requires climate risk disclosure. We do not find that entity size is an indicator of whether a commitment will be made.

• The number of mitigation targets are growing, but key details—including credible transition plans and ambitions—are lacking. We found only 10% of entities with net zero targets had public interim emission reduction targets, which are a key first step to implementing companies taking action. These shorter-term targets also allow for easier monitoring of progress. By joining GFANZ alliances and Race to Zero, companies are committing to release interim emissions reduction targets within the next two years, and some institutions are expected to announce progress and interim emission reduction targets in the run-up to COP26. Since so many financial institutions have only committed to net zero in the last year, it is not surprising that further details are not yet available. In addition to actual emissions reductions, financial institutions are often required to provide guidance on how they will use carbon offsets for those emissions they are unable to reduce to zero. None of the entities in our sample published details around how and when carbon offsets would be used. While the immediate goal is to reduce emissions, use of carbon offsets is proposed to account for investments in harder-to-abate sectors.

• We tracked almost USD 6 trillion cumulative in investments pledged to climate solutions by 2030, representing almost a doubling from current private finance climate investment trends. However, these commitments lack detail on target sectors and regions. Tracked climate finance commitments historically have not gone to developing economies and hard-to-abate sectors, and these are both areas in which financial institutions can have an outsized impact if they commit to invest. Recent efforts to mobilize finance to developing economies is hopefully an indication of progress in this area.

• Fossil fuel exclusions and divestment policies are primarily coal-related and consistent with calls to reduce emissions from coal, but a real shift away from fossil fuel investments is missing. Overall, we found that the divestment thresholds placed by most entities contained broad ranges. As a result, continued financing of new and existing coal projects is effectively allowed, for example for companies with up to 40% of revenue coming from coal or through financing parent companies with many subsidiaries. Moreover, few entities are taking steps to phase out oil and gas financing. Those that do are focused on specific locations such as Arctic drilling and tar sands development, as opposed to the needed global reduction in building new fossil fuel infrastructure. Financial institutions, especially asset managers, are starting to take seriously the need to use proactive client engagement tools, such as shareholder voting and providing guidance to portfolio companies, in order to avoid emissions leakage and avoid punishing companies that are genuinely interested in change.

• Financial institutions are taking different paths to achieving their climate goals, ranging from launching new products to using shareholder actions. New products are sometimes incorporating ESG aspects into existing vehicles, while other organizations are launching new ESG funds. Internal operational changes range from changing shareholder engagement policies to including sustainability success in management remuneration. Further research and follow-up are needed to ensure that these steps truly shift activities away from high-carbon assets and are consistent with the top-line climate goals companies are setting out.

There are opportunities to expand the breadth and depth of financial institution commitments across the board. The numerous net zero alliances initiated in the last few years, such as the Glasgow Financial Alliance for Net Zero, are laying a path forward for entities seeking to go beyond high-level net zero targets.  Such a roadmap includes setting targets, steps for implementation, and reporting and standardized metrics. A summary of requirements of joining these groups is included in Annex 1. Additional groups like CA100+ and advocacy organizations have the potential to bring together actors to solve the collective action problem and magnify the impact of advocacy and shareholder actions. Many of these requirements match the recommendations provided in this report.

Beyond the private sector sphere, establishing a public policy environment that sends clear signals to financial sector actors that meeting these commitments is the most profitable and sustainable path forward is needed. This includes the use of public finance and incentives to crowd-in private investments, especially in sectors and regions that have so far been viewed as riskier, as well as introducing enabling legislation like climate risk disclosure mandates, short- and long-term emissions reductions targets, and carbon pricing.

Read the 2022 update to this report