This paper identifies key challenges in assessing the current state of climate-related metric disclosures by financial institutions and proposes a framework for monitoring their net-zero commitments.
Disclosure of emission metrics. The largest portion of GHG emissions from the financial sector comes from indirect emissions, specifically classified as scope 3 emissions, notably the so-called “financed emissions” resulting from financial institutions’ investments. However, disclosure rates remain low. In 2024, only 19% of listed financial institutions globally reported scope 3 GHG emissions.
Using GHG emission estimates by external service providers may help fill data gaps in reported GHG emissions. For example, the data coverage for scope 3 GHG emissions increases from 19% when using reported data, to 57% when using estimated data from two prominent data providers. Likewise, a comparison between reported and estimated GHG emissions for 1 166 listed financial institutions suggests that the sector may underreport its current GHG emissions by up to eight times, if estimated data is accurate.
Globally, one-third of financial institutions that reported GHG emissions had a third party assuring the information. Insurance companies had relatively higher levels of third-party verification, including in Developed Asia-Pacific excl. US (54%), Europe (54%), and the United States (34%).
Disclosure of GHG emission reduction targets and net-zero commitments. Financial institutions may adopt a comprehensive strategy that considers climate risks and opportunities, including GHG emission reduction targets. Globally, 908 listed financial institutions have set GHG emission reduction targets, and 78% of them have set net-zero targets. Nevertheless, despite the relevance of financed emissions, only 27% of listed financial institutions disclosing targets have set scope 3 GHG emission reduction targets, and 41% of them have committed to science-based targets. Moreover, only 8% of financial institutions globally have developed a climate-related transition plan.
Even among the financial institutions disclosing GHG emission reduction targets, incomplete disclosures can hinder investors’ ability to compare institutions’ progress and assess their management’s performance toward net-zero goals. Data from three major commercial database providers indicate a significant gap in disclosures among listed financial institutions with reduction targets, particularly concerning the baseline year and baseline emission data.
Analysis of the available data for targets and net-zero commitments. The ambition, comprehensiveness, and feasibility of GHG emission reduction targets help assess the credibility and effectiveness of financial institutions’ climate-related goals.
One way to evaluate the ambition of corporate reduction targets is by assessing annual reduction rates. On average, listed financial institutions aim for a 4% annual reduction rate of total GHG emissions globally.
Comprehensiveness reflects the extent to which a company’s target addresses its total emissions. In 2024, only 55% of total reported GHG emissions were covered by these targets, with Europe leading in coverage at 65%, followed by the United States (61%) and Emerging and Developing Asia excl. China (51%).
Regarding feasibility, targets may be challenging to achieve when ambition and comprehensiveness are high. In 2024, 65% of listed financial institutions failed to meet their targets, while only 35% successfully met all or some of the targets.
Corporate governance and materiality of climate-related risks. Globally, 22% of financial institutions identified climate-related risks as material, accounting for 87% of total assets in 2024. Smaller shares are found in emerging markets and developing economies.
Financial institutions that identify climate-related risks as material are also proactive in ensuring board oversight of those risks. Globally, 85% of listed financial institutions by total assets report board oversight of climate-related risks, with the People’s Republic of China (hereafter ‘China’) and Developed Asia-Pacific excl. US having the highest shares of companies. Globally, 16% of financial institutions have a board-level committee responsible for broader sustainability-related issues. Fifteen percent of boards considered sustainability matters when establishing key executives’ compensation in 2024.
Solutions for improving the data to monitor progress against net-zero commitments. A clear set of credible, transparent and comparable metrics is needed to track progress on GHG emission reduction targets by financial institutions. Several potential solutions exist for enhancing the data needed to monitor net-zero commitments.
To enhance data availability: (i) focus on a limited set of essential metrics to monitor net-zero commitments in the financial sector, including historical GHG emissions, GHG emission reduction target rate(s), target year(s), baseline year, and emissions covered by the target; (ii) adhere to high-quality, understandable, enforceable and internationally recognised climate-related disclosure frameworks; (iii) create digital taxonomies for climate-related disclosure and/or a digital platform centralising financial institutions’ public climate-related information.
To increase the quality of climate-related disclosure: (i) phase in requirements for annual assurance attestations by an independent, competent, and qualified attestation service provider for the most relevant climate-related metrics by financial institutions; (ii) oversee financial institutions' disclosure of GHG emissions based on a comparison between reported and estimated emissions.
To improve the credibility and effectiveness of GHG emission reduction targets: (i) encourage the development of net-zero transition plans by all financial institutions; (ii) provide regulatory incentives for financial institutions to provide more climate finance.
A proposed framework for monitoring net-zero commitments. A framework for monitoring progress against net-zero commitments by financial institutions could be structured around five high-level steps: (i) collect GHG emissions and reduction targets, ensuring a minimum level of information; (ii) evaluate reduction targets by GHG emission scopes, focusing on assessing their ambition, comprehensiveness, and feasibility; (iii) monitor adherence to voluntary initiatives, emphasising tangible performance and outcomes rather than mere participation; (iv) assess the corporate governance of financial institutions; (v) track climate finance, including green bonds, sustainable loans and investments in green technologies.