Financial institutions urged to enhance support for green transition

Global banks miss the mark on fossil fuel finance

The World Benchmarking Alliance has published stark findings about how the world’s financial institutions are funding the energy transition. According to the assessment, only two of the 400 largest banks, insurers, asset managers and pension funds have credible commitments to phase out fossil fuel financing. Meanwhile, the vast majority continue to focus climate plans on their own buildings and operations rather than the carbon emissions embedded in the loans, investments and underwriting they provide.

For UK businesses, this matters because financial institutions shape access to capital, insurance premiums and investment flows. If banks and investors are slow to redirect money away from high-carbon projects, the wider economy will struggle to move at the pace climate policy now demands. Furthermore, companies seeking green finance or sustainability-linked loans may find that lenders lack the internal frameworks to assess transition plans properly.

Only two institutions have robust fossil fuel phase-out plans

The World Benchmarking Alliance reviewed 400 of the world’s largest financial institutions across banking, insurance, asset management and pension fund sectors. The results were sobering. Just two organizations, ING and Zürcher Kantonalbank, have what the WBA terms robust commitments to phase out fossil fuel financing. The rest either lack formal policies or have weak, conditional statements that leave room for continued investment in oil, gas and coal.

Approximately one-third of the institutions assessed show early signs of transition planning. These firms have started setting climate metrics, establishing governance structures for climate risk, or drafting net-zero targets. However, only 26% of those plans extend to financed activities. In other words, most institutions are measuring and managing emissions from their own offices, data centers and staff travel, but not the far larger emissions generated by the projects and companies they fund.

Among the minority that do address financed emissions, the WBA found that only 47 institutions have embedded short-term financing targets aligned with a 1.5°C pathway. The picture varies sharply by sector. About one-fifth of banks included time-bound financing targets compatible with 1.5°C, compared with fewer than 3% of asset managers, 10% of insurers and 7% of pension funds. As a result, the majority of capital flowing through global markets remains disconnected from climate science.

Europe leads, but North America lags badly

The WBA identified significant regional differences in how financial institutions approach transition planning. Europe and Central Asia performed best, with just over 60% of institutions having transition plans that cover financed activities. East Asia followed at 42%, while North America trailed at just 18%. Nevertheless, even the strongest-performing region shows limited evidence of large-scale capital reallocation toward low-carbon projects.

The organization’s overall conclusion was blunt. Financial institutions may be building the infrastructure for transition planning, but they are not yet converting those plans into lending, underwriting or investment decisions that would materially accelerate decarbonization. In practical terms, this means the financial sector is preparing reports and governance frameworks while continuing to fund carbon-intensive industries at scale.

Why UK businesses should pay attention

Finance is one of the most powerful levers in the climate transition. Banks decide which projects receive loans. Insurers determine which risks are underwritten and at what cost. Asset managers and pension funds allocate trillions in capital across equity and debt markets. Consequently, if these institutions do not shift their policies, the broader economy cannot move quickly enough to meet national or international climate commitments.

For UK SMEs, this disconnect has direct consequences. Businesses that need finance for decarbonization projects may find limited appetite from lenders still tied to traditional credit models. Companies competing for public sector contracts under PPN 06/21 or similar procurement frameworks need to demonstrate credible carbon reduction plans, yet the banks they rely on may not have the expertise or data systems to support that work properly.

There is also a mismatch between climate rhetoric and portfolio-level action. Many financial institutions now publish net-zero commitments or transition plans. However, far fewer have clear, time-bound policies to reduce financing for fossil fuels or redirect capital into renewable energy, building retrofits, clean transport or other low-carbon solutions. As the World Bank has noted in its climate finance research, financial institutions cannot afford to remain outside the transition path to low-carbon economies, because carbon pricing, emissions standards and energy policy changes directly affect the creditworthiness and risk profile of their clients.

This creates uncertainty for businesses planning long-term investments. If your bank or insurer is not yet aligning its risk models with climate policy, you may face unexpected changes in lending terms, insurance availability or capital costs as regulations tighten. Conversely, businesses that can demonstrate robust transition plans may gain access to preferential finance as institutions eventually move to reward lower-risk, future-facing portfolios.

Just transition principles remain largely absent from finance

The World Benchmarking Alliance is also linking climate finance to the concept of a just transition. This refers to the principle that decarbonization should be fair, inclusive and socially protective, supporting workers and communities affected by the shift away from carbon-intensive industries. In a separate WBA document, the organization found that adoption of just transition principles in business and finance remains minimal. Only 6% of 399 companies assessed were partially planning for a just transition, and none had fully implemented one.

This matters for several reasons. Transition plans that ignore workers, communities and affordability can face political resistance and implementation risk. In the UK, this plays out in debates over North Sea oil and gas jobs, the pace of coal plant closures, and the cost of home retrofits. A credible climate strategy increasingly needs both decarbonization targets and social protections, or it risks losing public and political support.

For businesses working with financial institutions, this means transition plans that address social impacts may become a requirement in due diligence processes. Lenders and investors are beginning to ask not just whether a company has a net-zero target, but whether it has considered the employment, supply chain and community effects of meeting that target. Companies that can answer those questions clearly are likely to be seen as lower-risk and more resilient.

Key findings from the global financial assessment

• Only two of the world’s 400 largest financial institutions have robust commitments to phase out fossil fuel financing.
• Approximately one-third of institutions show early signs of transition planning, but only 26% extend those plans to financed activities.
• Just 47 institutions have embedded short-term financing targets aligned with a 1.5°C pathway.
• Europe and Central Asia lead with 60% of institutions covering financed activities in transition plans, compared with 42% in East Asia and 18% in North America.
• Only 6% of companies assessed are partially planning for a just transition, and none have fully implemented just transition principles.
• Financial institutions are building governance structures and reporting frameworks, but capital reallocation toward low-carbon projects remains limited.

What this means for UK SMEs and compliance

Several near-term pressures are emerging for financial institutions, and these will affect the businesses that depend on them. Regulatory expectations around climate risk disclosure and transition plan credibility are increasing, particularly in the UK and EU. Investor and civil society scrutiny is growing around whether net-zero commitments are backed by lending and underwriting limits. Consequently, institutions that move early to improve transparency and align portfolios with climate goals are likely to be better positioned as regulations tighten.

For UK businesses, this creates both risks and opportunities. Companies with high-carbon business models or supply chains may face higher borrowing costs, reduced insurance availability or pressure from investors to demonstrate credible transition plans. On the other hand, businesses that can show clear pathways to lower emissions may gain access to sustainability-linked loans, preferential rates or new sources of green finance.

There is also a competitive dimension. As public sector procurement frameworks such as PPN 06/21 require suppliers to demonstrate carbon reduction plans, businesses that can point to strong financial backing for decarbonization projects will be better placed to win contracts. However, if your bank or insurer has not yet built the capacity to assess transition plans, you may need to seek alternative providers or work harder to educate your existing lenders about your climate strategy.

Portfolio risk is another consideration. Financial institutions with heavy exposure to fossil fuels face potential losses if policy, technology and market conditions accelerate the shift away from carbon-intensive assets. For businesses, this means the financial health of your lender or insurer may itself become a climate risk. It is worth understanding whether your bank has exposure to stranded assets or sectors facing rapid decline, because that could affect their ability to support your business in future.

Ultimately, the WBA’s assessment suggests that many institutions are still in the early stages of climate alignment. The sector is making progress on disclosure and planning, but it remains well short of the decisive capital reallocation needed to support a rapid green transition. Businesses that rely on these institutions for finance, insurance or investment should be prepared for uneven progress, tightening expectations and a gradual but significant shift in how capital is allocated.

How businesses can respond to shifting finance priorities

Given the slow pace of change in the financial sector, UK businesses need to take proactive steps. First, understand your own carbon footprint and develop a credible transition plan. This is not just a compliance exercise. It is increasingly a prerequisite for accessing finance, insurance and public sector contracts. Our net-zero program for carbon reporting compliance helps businesses measure emissions accurately and build plans that meet emerging standards.

Second, engage with your bank, insurer and investors early. Ask what climate policies they have in place and how they assess transition plans. If your current providers lack the frameworks to support your decarbonization goals, it may be worth exploring alternatives. Some financial institutions are moving faster than others, and businesses that align with forward-looking partners may gain a competitive edge.

Third, consider how supply chain emissions affect your access to finance. Many lenders and investors are starting to assess Scope 3 emissions, which include the carbon footprint of your suppliers and customers. Businesses that can demonstrate control over their supply chain emissions will be better positioned as financial institutions tighten their criteria. Our sustainable procurement support can help you assess and reduce supply chain carbon risks.

Finally, stay informed about regulatory changes. Climate disclosure requirements are evolving rapidly in the UK and EU, and financial institutions are under increasing pressure to align lending and investment policies with national climate targets. Businesses that anticipate these changes and adapt early will find it easier to access capital and maintain competitiveness as the transition accelerates.

Where to find authoritative guidance

The World Benchmarking Alliance has published its full findings in the Financial System Climate Assessment, available on the WBA website. The assessment includes detailed benchmarks for individual institutions and sector-level analysis.

For businesses seeking guidance on transition planning and just transition principles, the WBA has also published a report on how finance can support credible and just transition plans. This document outlines the social dimensions of decarbonization and how businesses can integrate fairness into climate strategies.

The World Bank has published research on how banks can seize opportunities in climate and green investment, which explores the financial risks and opportunities of the transition. This provides useful context for understanding how climate policy affects creditworthiness and risk assessment.

UK businesses should also monitor guidance from the Financial Conduct Authority and the Bank of England, both of which are developing climate risk frameworks for the financial sector. These regulatory developments will shape how UK institutions approach climate finance in the coming years.