A new report has revealed a stark disconnect between climate rhetoric and investment reality in the finance sector.
Despite mounting pressure to align with net-zero pathways, most financial institutions remain deeply invested in fossil fuels. According to the 2024/25 Net Zero report from climate consultancy South Pole, 72% of surveyed financial firms have no plans to reduce their fossil fuel exposure over the next decade, and nearly half cite unclear regulations as a barrier to decarbonisation. South Pole calls this dual-track approach “financial cakeism”, which refers to the growing disconnect between climate pledges and portfolio decisions.
Based on responses from 350 sustainability executives across 13 countries, the report paints a conflicted portrait of the sector. While most financial institutions claim to be actively decarbonising, nearly a third (27%) are dialing down their climate ambition, opting for safer, more conservative net-zero claims amid political and market uncertainty.
CLIMATE ENGAGEMENT & ACTION: KEY FINDINGS
“Financial institutions want to have their cake and eat it too,” said Dr Daniel Klier, CEO of South Pole. “They’re ramping up green engagement, but continuing to fund fossil fuels behind the scenes.”
Even with international frameworks like the Glasgow Financial Alliance for Net Zero (GFANZ) and the Science Based Targets initiative (SBTi), many firms appear to be cherry-picking climate actions. Key findings from the report reveal that:
- 47% of institutions cite regulatory ambiguity as a key obstacle to net-zero implementation.
- 44% plan to increase their green asset exposure over the next 10 years.
- 88% expect to ramp up engagement with portfolio companies on climate issues within the next two years.
- 86% claim to be on track—or partially on track—to meet their net-zero targets.
- Yet, the underlying contradiction remains: financial institutions are increasing climate engagement while keeping fossil fuel investments largely intact.
RISK MANAGEMENT
The report also highlights divisions within the industry. Insurance firms emerged as the most proactive players, with the highest percentage of respondents implementing stringent decarbonisation requirements.
“Insurers are ahead of the curve because risk management is their core business,” said Dame Inga Beale, Chair of South Pole’s Board and former Lloyd’s CEO. This isn’t just good ethics – it’s sound strategy for protecting assets from climate-related risk. “Those who proactively manage risk today will be better positioned for success tomorrow,” she added.
However, Klier, believes that the sector is treading dangerous ground. “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,” he warned.
GREENWASHING SCRUTINY
The report offers a sobering reality check for a sector navigating competing priorities. Financial institutions are making real strides in green finance and climate engagement, but remain unwilling to part ways with fossil fuel profits. As scrutiny around greenwashing intensifies and climate risk accelerates, the financial sector’s balancing act between short-term returns and long-term sustainability may soon reach its breaking point. Download the full report here.
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