Climate finance refers to the financial resources and instruments used to support actions aimed at mitigating and adapting to the impacts of climate change. This includes funding for renewable energy projects, energy efficiency improvements, and initiatives to enhance climate resilience. Climate finance is crucial as it helps provide the large-scale investments needed to transition to a low-carbon global economy and to help societies build resilience against the adverse effects of climate change.
The necessity of climate finance stems from the urgent need to limit global warming to well below 2°C, as outlined in the Paris Agreement. Achieving this goal requires significant financial resources to reduce greenhouse gas emissions and to adapt to the changing climate. Developing countries, in particular, need substantial support to build resilience and mitigate climate risks, as they are often more vulnerable to the impacts of climate change.
However, while some momentum has built up in past years as global financial organisations expressed firm commitments towards climate finance, the commitments have softened somewhat in recent times. With the recent exodus of some banks from the Net Zero Banking Alliance (NZBA), it’s worth examining how banking commitments towards climate finance have evolved and what we might expect going forward.
Global banking commitments towards climate finance
Banks and financial institutions globally have made various commitments to support climate finance and the transition to a low-carbon economy. Here are some key highlights:
- Net Zero Banking Alliance (NZBA): Over 130 banks from 44 countries have joined the NZBA, committing to align their lending and investment portfolios with net-zero emissions by 2050. This includes setting interim targets to reduce emissions in the near term.
- Collective Commitment to Climate Action (CCCA): This initiative includes 38 banks from six continents, committed to aligning their portfolios with the global climate goal of limiting warming to well-below 2°C.
- Glasgow Financial Alliance for Net Zero (GFANZ): A coalition of over 450 financial institutions, including banks, insurers, and asset managers, aiming to mobilize $100 trillion for green investments by 2050.
- Sustainable Finance Initiatives: Banks in the US have collectively pledged at least $3.5 trillion towards sustainable initiatives over the next decade. European banks have set interim decarbonization targets for 2025 and 2030 as part of their commitment to achieve carbon neutrality by 2050.
Climate Finance for Developing Countries: Global financial institutions are playing a crucial role in mobilizing finance for climate-related projects in developing countries, which are often more vulnerable to climate risks.
How have these climate finance commitments evolved?
As of 2025, the delivery on climate finance commitments by banks and financial institutions has been mixed, with notable progress in some areas and significant challenges in others:
In early 2025, six major US banks withdrew from the NZBA, raising concerns about their commitment to achieving net-zero emissions by 2050. Despite pledges to mobilize trillions towards sustainable initiatives, the actual implementation has faced hurdles. Certain banks have abandoned their net-zero targets, citing insufficient conditions to help clients decarbonize. Reports also indicate that US banks have continued to finance fossil fuels significantly, with over $1.8 trillion financed since the Paris Agreement.
In Europe, the European Central Bank (ECB) has published its climate and nature plan for 2024-2025, focusing on green investment needs, transition risks, and integrating climate impacts into macroeconomic projections. The ECB has conducted stress tests to assess the resilience of banks to transition risks, ensuring the financial system can support the green transformation. However, experts suggest that European banks’ climate commitments have yet to lead to significant lending changes that support a shift to net-zero emissions.
At COP29, a global coalition of financial organizations issued recommendations for post-2025 climate finance goals, emphasizing the need for strategic mobilization of both public and private capital. Despite the need for trillions in financing to mitigate global warming, only one-fifth of financial institutions have identified specific climate change-related business opportunities. The private sector accounted for 50% of total climate finance in 2022, with most funds directed towards advanced economies.
Overall, while there have been efforts to advance climate finance, I would say that the overall impact has been limited, and significant challenges remain. To make positive headway in bridging the climate financing gap, banks and financial institutions will need to significantly strengthen their commitments and actions to meet global climate goals effectively.
