Towards climate-aligned private finance: promising practices from institutions, initiatives and governments

Private financial institutions (FIs) play a pivotal role in global decarbonisation as they shape financial flows that are required to enable transition. However, FIs primarily undertake voluntary climate action through net-zero portfolio commitments, which have faced criticism for their limited efficacy in driving meaningful decarbonisation. Voluntary cooperative climate initiatives (CCIs) seeking to amplify FIs’ climate efforts have shown limited success, raising concerns about the capacity and incentives for FIs to drive credible climate action without supportive regulatory and market environments. To address this challenge, we propose a framework of "impact levers" to evaluate how FIs, CCIs, and regulators can achieve meaningful alignment between financial practices and real-economy climate goals. We exemplify these impact levers by identifying case studies of real-world promising practices. At the institutional level, we assess the role of banks, asset managers, and pension funds in aligning capital allocation with climate goals while navigating profit-driven mandates. At the CCI level, we examine initiatives like the Glasgow Financial Alliance for Net Zero, assessing their potential to unify financial actors despite challenges of voluntary participation. At the regulatory level, we investigate mechanisms for embedding systemic climate risks into financial decision-making to drive accountability and shift markets toward emissions reductions. Our preliminary findings reveal that net-zero methodologies dominate the financial sector’s approach to climate alignment and action-orientated strategies remain underutilised. This framework provides a structured approach to evaluate and enhance the effectiveness of financial institutions in supporting global decarbonisation goals.