Financial Sector Struggles with Net-Zero Goals as Green Investments Rise but Fossil Fuels Remain

Nearly three-quarters (72%) of financial institutions have no plans to reduce their investments in fossil fuels over the next 10 years. However, 44% plan to increase their exposure to green assets over the same period, demonstrating a growing focus on low-carbon investments.

Additionally, nearly 80% of respondents are more likely to finance companies with clear climate transition plans than those without, according to a new Net Zero report from South Pole, which analyses 350 financial institutions across 13 countries, revealing a complex and often contradictory picture in the global financial sector.

The obstacles slowing financial institutions towards net zero

The report also highlights that nearly a third (27%) of financial institutions are adopting more conservative disclosures regarding their net zero strategies and environmental credentials, while 47% point to unclear regulation as a significant barrier to progress towards carbon neutrality.

This implies that many of the companies that claim to be “on track” are still facing significant difficulties related to the lack of precise indications. Despite these difficulties, 86% of the interviewees believe they are “on track” or “partly on track” towards reaching net zero.

In Europe, a majority (58%) see the lack of clear industry guidance as a key obstacle , despite the presence of numerous regulators and leading organizations providing detailed guidance on net zero. Additionally, European financial institutions are the most likely (52%) to cite the organizations they finance as the main reason slowing progress towards net zero, compared to 39% of institutions in APAC and 40% in the Americas.

Green assets: financial institutions’ growing commitment to decarbonisation

Financial institutions identify two main goals for decarbonisation over the next ten years: increasing exposure to green assets (44%) and increasing the number of companies with climate transition plans or net zero strategies (44%).

In contrast, only a minority (28%) consider reducing fossil fuel exposure as a priority tactic for decarbonization . However, insurance companies stand out, with a significantly higher percentage (43%) than other categories of financial institutions, showing a greater propensity to reduce investments in fossil fuels.

These data reflect a selective dynamic, where the commitment to sustainable assets and climate planning takes on a central role, while the divestment of fossil fuels appears as a less priority challenge for many institutions.

Insurance companies on the front line

2025 is a pivotal year for the transition to net zero, with the anniversary of the Paris Agreement and new policy and market challenges. South Pole’s report provides essential insight into how financial institutions are navigating this historic moment, balancing innovation and resilience in a context of growing climate and regulatory pressure. “Insurers have long been leaders in risk management and South Pole’s latest report shows that they are often ahead of other financial institutions in addressing the challenges of decarbonisation.”

Notably, the highest proportion of respondents adopting “stronger decarbonisation requirements” came from the insurance sector. A focus on sustainability is a key risk mitigation strategy to protect against climate impacts on insured assets. Those who proactively manage risk
today will be better positioned for success tomorrow,” said Dame Inga Beale , Chair of the South Pole Board.

“The findings of the analysis demonstrate that financial institutions continue to support green infrastructure investments and are willing to increase their exposure to climate-resilient assets and companies in their portfolios. However, it is also clear that the sector is no longer taking an active role in shaking up this balance and will continue to finance fossil fuels. Financial institutions want it all and give up nothing,” commented Daniel Klier, CEO of South Pole.

“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. It is important to embrace positive inflection points created by new, cleaner and more competitive technologies; but the sector runs serious transition and physical risks when it delays its response to clear climate inflection points.”

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(Featured image by Chris LeBoutillier via Unsplash)

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