Net Zero Finance Tracker

Net Zero Coalition efforts have spurred progress on the adoption and quality of climate mitigation targets, with larger institutions leading the way. Progress has also been made on the adoption of operational targets related to climate investment, though these remain less common.

To ensure that climate commitments are meaningful and achieve real impact, financial entities should disclose both short- and long-term climate mitigation targets. These targets should have specific, measurable implementation goals, cover the full range of financed emissions, and ideally be independently validated. Financial institutions should also focus on translating such targets into operational climate finance goals, including investment in climate solutions and phasing-out of fossil fuels investment.

Almost three-quarters of NZFT-tracked entities -covering more than 95% of assets managed and owned- had set mitigation targets as of 2022-2023, with an increase of 6% in the last year (compared to an increase of 80% from 2021 to 2022). Further, the share of entities that have achieved quality mitigation targets (scored as Partial Response, as shown in Figure 2) has progressed significantly from 28% to 42%. Among financial institutions with a mitigation target, the proportion of entities that reported a portfolio coverage exceeding 90% increased from 5% in 2022 to 11% in 2023. This rise reflects efforts to address all asset types within their portfolios. Financial institutions have typically prioritized addressing the highest-emitting sectors within their portfolios, focusin on areas where clear decarbonization pathways exist. Despite encouraging progress on climate targets -driven by legislation and voluntary initiatives- challenges persist due to limited data availability, comparability, and independent validation on Scope 3 financed emissions (S&P 2023; ECB 2023).

Quantified climate finance targets (marking a “Partial Response”) have grown significantly to at least USD 13 trillion in cumulated commitments, made by 5% of entities tracked, representing 38% of the assets managed or owned in the sample. Possible persisting barriers to climate finance target setting include the lack of available pipelines for investment, as well as an insufficiently supportive policy environment, particularly in relation to EMDE countries.

There was also a slight increase in the adoption of fossil fuel phase-out and exclusion targets. As of 2023, 23% of tracked entities -representing more than two thirds of assets managed or owned by NZFT entities- recorded at least a partial response on this metric, compared to 16% in the previous year. Most of these financial institutions have committed to divestment and partial fossil fuel exclusion, with only 2% found to have set phase-out policies covering all fossil fuels in the data sources analysed, while an additional 3% of entities in our sample reported comprehensive fossil fuel exclusion policies.

Financial institutions contributed to the financing of up to 15% of new energy projects in 2023. While NZFT institutions' direct investment in clean energy projects grew at an average rate of 6.3% per year from 2019 to 2023, direct finance to new fossil-fuel plants still slightly outstripped these investments in 2023, reaching USD 33.4 billion in 2023.

What ultimately matters is the impact that financial institutions have on the real economy, be it directly or indirectly enabled. Clean energy investment can reduce emissions, while financing new fossil-fuel power plants can lock them in for decades to come.

We investigated the level of financing directed towards the construction and deployment of new physical assets, such as coal plants and wind farms. This represents a subset of investments, specifically and focusing on financial transactions targeting new projects, as compiled from multiple asset-level datasets. Refinancing or acquisitions of existing projects are thus excluded from the analysis.

While direct investments in clean-energy projects (including renewable energy, energy storage, power grids, and nuclear plants) had an average annual growth rate (AAGR) of 6.3% since 2020, investment in new fossil-fuel capacity also saw a growth of close to 10%, with an acceleration in the last two years. This resulted in clean energy investments investment levels being lightly below financing to new fossil fuel projects in 2023.

Financial institutions in our dataset that had strong targets also had stronger implementation.

In 2023, entities that had shown a “Partial response” to target-setting (horzintal axis in the figure to the right) were up to eight times more likely to also take Implementation action (indicated by a larger share of advanced responses on the vertical axis) than those with lower responses on targets. Conversely, poor implementation correlated with weak or lacking targets.

Setting strong net zero targets provides organizations with clear direction, motivation, and accountability, aiding strategic planning and resource allocation to achieve them. Additionally, ambitious targets provide transparency and guidance to investors, shareholders, media, and the public, necessitating meaningful action to reflect progress on the company’s own stated goals. Financially, climate action has also been found to lead to higher-than-expected returns (Ernst & Young, 2022).

Despite improved data coverage for several indicators, coordination between data providers could improve efforts to close remaining information gaps.

Third-party open data initiatives, initiatives that standardize and streamline disclosures, and a gradual move from voluntary to mandatory disclosure of emissions and transition planning would significantly improve data availability.

Gathering data for the NZFT has increased our understanding of where data collection efforts have been focused and where key gaps remain. Thanks to our expansion of data sources, we observed significant improvements in the coverage of several indicators. This is most notable regarding mitigation targets, divestment targets, policy engagement, and disclosure of climate risk and investment data. We also saw improved data for portfolio emissions, though this is still only tracked for one-quarter of institutions in our sample, and comparability between sources remains limited.

Efforts aimed at enhancing the availability and standardization of data in machine-readable formats are also crucial. Initiatives like the Net Zero Data Public Utility (NZDPU) play an essential role in improving data accessibility and comparability at the source by enhancing reporting by financial entities. Extensive direct surveys by established organizations like CDP and PRI, and progress reports from coalitions, help to source the bulk of the data required to track commitments and actions implemented by organizations.

Third-party data initiatives that independently track material evidence of actions, responses, and their impacts (e.g., InfluenceMap and ShareAction) or maintain and expand asset-level datasets (e.g., BNEF, Asset Impact, and Global Energy Monitor) are also critical to making information available where reporting incentives are not aligned with financial institutions’ interests, such as on disclosure of policy and shareholder engagement, or on the reporting on fossil fuel investment and emissions.

Significant restrictions may, however, still exist in the use of data for entity-level assessment in the case of commercial datasets, even when heavily processed, leading to reduced transparency. This calls for the need to further scale up open data at the asset level.