Scale up private investment for climate and nature

More than 675 major financial institutions with over $145 trillion in assets under management made net-zero commitments for 2050 under the Glasgow Financial Alliance for Net Zero global coalition. In addition to establishing emissions-reduction targets, many financial institutions are committing to increased financing and investments toward sustainable finance as part of their net-zero commitments. These commitments can drive future private climate finance flows, along with changing market conditions that attract investment in the low-carbon economy.

Sustainable finance pledges can vary among institutions: some focus on climate solutions and the low-carbon transition, while others include more general social goals. According to the Climate Policy Initiative, the cumulative climate finance  pledges from private financial institutions totaled about $7.4 trillion in 2022. While an increase in sustainable finance commitments is a sign of progress, a greater share of these investments must be channeled toward developing countries and neglected sectors where private finance has historically been absent.

Many financial institutions have committed to achieving net-zero greenhouse gas (GHG) emissions by 2050. Commitments are a positive sign, but they are not enough — in practice, some institutions may have aligned only some of their financial assets (owned or managed financial resources, like stocks, bonds or property) with a net-zero emissions pathway.

For example, some institutions exclude carbon-intensive assets, like bonds for oil and gas infrastructure, from their net-zero targets while still claiming that they are on a path toward net-zero. Measuring the total assets under management that are covered under emissions reduction targets provides a more accurate picture of gaps and progress toward net-zero alignment.

Members of the Net Zero Asset Owner Alliance and the Net Zero Asset Managers initiative provide disclosures that specify the share of assets aligned with net-zero. For asset owners, about $3.4 trillion were covered by a sub-portfolio net-zero target in 2022. Asset managers committed $21.8 trillion to be managed in line with net-zero targets in the same period.

Although some overlap of the amounts is likely given the relationship between asset owners and managers, asset owners and asset managers have committed a combined $25.2 trillion assets under their management aligned with net-zero.

While it’s possible that certain asset classes, such as cash, may not be suitable for net-zero alignment because they have no intrinsic economic activity associated with their value, methodologies are being developed to expand alignment to cover more types of assets.

Disclosures from asset managers and asset owners are reflected in this indicator. As other types of financial institutions — namely, banks and insurers — begin disclosing the share of their portfolios and assets that are aligned with net zero, that data will also be reflected. 

To follow through on net-zero plans to reduce GHG emissions, financial institutions — banks, asset managers, asset owners and insurers — need to set interim targets for 2025 and 2030 that are aligned with the latest climate science. 

More than 450 major financial institutions with over $130 trillion in assets under management made net-zero commitments for 2050 under the Glasgow Financial Alliance for Net Zero global coalition. However, many have yet to set interim targets that will steer near-term action. Interim goals provide financial institutions with a roadmap of steps, all with the aim of allowing them to reach net-zero by 2050. 

Measuring interim progress will provide time-sensitive feedback that indicates if actions are on track. Interim goals should be built upon the latest climate science and robust 1.5 degree C (2.7 degree F) pathways, and be clearly defined and independently validated. Otherwise it is difficult for regulators, shareholders and consumers to tell whether targets are of high integrity, or whether they are greenwashing, as has been highlighted by recent research.

As of September 2022, 151 financial institutions had interim 2025 or 2030 targets for net-zero. Forty-four are asset owners, 39 are asset managers and 68 are banks. As targets are set, the next step is to have them independently validated. This number is expected to grow as more financial institutions make net-zero commitments. Other types of financial institutions will be included in this indicator once data becomes available.

Financial institutions play an important role in managing biodiversity risks and funneling capital into solutions that preserve and protect natural ecosystems. They can share best practices and engage in efforts to advance public policies or sectoral practices related to environmental sustainability by joining alliances and coalitions.

Financial institutions have developed a Finance for Biodiversity Pledge, which calls upon finance leaders to protect and restore biodiversity and ecosystems via their financing and investment activities. Some specific pledges include engagement with companies to increase positive biodiversity impacts, target- setting and public reporting on progress.

As more financial institutions join coalitions and recognize the importance of finance supporting nature-based solutions, they increase their collective power to shape public policies and promote common best practices. As of December 2024, 190 financial institutions had signed the Finance for Biodiversity Pledge. Once pledges and commitments are made, the critical next step is implementation, which will be tracked once data becomes available.