UK financial institutions leading climate action charge

The UK is a leading centre for thought leadership and expertise that brings forward practical steps to address the climate challenge.  

Our new report, From commitment to action: tracking UK financial services’ progress on the pathway to Net Zero, shows UK financial institutions are frontrunners in both setting climate goals and implementing climate actions, along with the US.

Global financial services institutions are ramping up their effort to address the climate crisis. Many of them have made formal climate commitments and joined key initiatives like the Glasgow Financial Alliance for Net Zero (GFANZ). Commitment is a great starting point. The next step is to realise these commitments and build a transparent mechanism that tracks progress on their transition to net zero.

The City of London Corporation jointly produced this report with the Climate Policy Initiative to examine the progress made by around 550 members of GFANZ. It focuses on UK-based GFANZ members.

Three dimensions are examined:

• climate targets setting,
• implementation of climate actions, and
• impacts on the wider economy

They represent increasing levels of materiality and relevance of progress.

UK institutions have made more advanced responses in climate target adoption and actions

The analysis shows that UK GFANZ members have made encouraging overall progress between 2020-2022. The UK – alongside the US – hosted the highest number of GFANZ members with the most advanced responses in setting climate targets and implementing climate actions. This means the UK has more GFANZ members that have adopted defined climate targets and have taken climate-related actions in stakeholder engagement, management practices and disclosures.

The UK – alongside the US – hosted the highest number of GFANZ members with the most advanced responses in setting climate targets and implementing climate actions

UK-based GFANZ members are the only ones among organisations in the top five GFANZ participating countries that both accelerated their shift away from new fossil fuel investment and increased climate-related investment in 2022

Target-setting was driven by uptake of mitigation and divestment goals led by large UK and US GFANZ asset managers. After a significant acceleration in the last two years, all UK GFANZ organisations adopted some climate-related targets in 2022.

In 2022, almost all UK GFANZ members had implementation plans in place. This includes climate-related actions in stakeholder engagement, management practices and disclosures, although more than half were just at planning stage. Within GFANZ, the UK hosted the highest number of institutions with advanced responses in the implementation dimension (18), followed by the US (15).  

UK-based GFANZ members are also the only ones among organisations in the top five GFANZ participating countries that both accelerated their shift away from new fossil fuel investment (new financing made available to fossil fuel) and increased climate-related investment in 2022. Although fossil fuel financing remained prevalent.

Top 5 countries by number of GFANZ entities – investment in wider economy 2022
(year on year change 2021-22) 

Accelerating climate actions through better data and transparency

Despite the encouraging effort in target setting and implementation, we need to accelerate actions in climate investment and transition risk management. New investment in fossil fuel continues to impact alignment of assets with net zero and the risk profile of institutions, despite the UK GFANZ members’ accelerated shift away from new fossil fuel investment. Green finance flows – mainly consisting of green bonds – have increased but are yet to fully take off. 

The role of data here is key. It enables financial institutions to better understand the wider economic impact of their activities. It can help to prioritise and scale up activities which are most effective in helping to meet net zero goals. This includes consideration of how financial services can be more actively encouraged to support the transition of corporations with clear transition plans, beyond pursuing the expansion of green opportunities.

At our second Net Zero Delivery Summit, where this report was launched, high level speakers including the Governor of the Bank of England, Andrew Bailey; Prime Minister of Barbados, The Honourable Mia Amor Mottley; and representatives from the COP27 and COP28 Presidencies united to discuss how the financial services industry and governments can take practical steps to address the climate challenge.