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Only two of 400 major financial institutions around the world have credible commitments to phase out fossil fuels, according to a new analysis.

The report by the World Benchmarking Alliance (WBA) also found just one third of the 400 assessed financial institutions are setting metrics and targets or embedding transition plans within governance structures.

Among the institutions with transition plans, around a quarter were found to have embedded one or more short‑term climate solutions financing targets that jointly align with the pathway.

The report also found noticeable regional variations, with Europe and Central Asia having the highest share (60%) of financial institutions with transition plans which cover financial activities.

While North America has the lowest prevalence of transition plans among the regions highlighted (18%).

“Transition plans are emerging as a critical tool for aligning the financial system with climate objectives,” the report states.

It adds in order to be credible and drive effective capital re-allocation, transition plans need to include ambitious targets and lay out a clear commitment phasing out the financing of fossil fuel activity.

“The global financial system is beginning to build the architecture for transition planning, but capital allocation and fossil fuel phase-out remain far behind what is required for an orderly and resilient economic transition,” the report adds.

The WBA’s engagement and communications director, Pauliina Murphy said financial institutions could play an “unlocking role” by phasing out investments in fossil fuels and encouraging other sectors to follow suit, in an interview.

Murphy added many financial institutions are not acting decisively enough or still investing through the lens of profitability rather than thorugh long-term transition plans.

She said global financial architecture systems, including governing and regulatory authorities, also need to adapt with a greater emphasis on transition planning.

And she added the U.K’s presidency of the G20 group next year could be an opportunity to encourage regulatory change and mandate fossil fuel phase-outs.

“If you look at low carbon investment and mobilizing financial flows, there’s around 1.3 trillion USD which could be potentially unlocked,” Murphy told me.

“The majority of financial institutions are not committing to the phasing-out of investing in fossil fuels and we have concluded many are transition agnostic in terms of their investment decisions.”

Dr. Jesse Abrams, a climate risk specialist and Green Futures Solutions Impact Fellow, at the University of Exeter said the report’s findings show the financial sector remains “dramatically exposed to the very transition risks it needs to manage” in an email.

Dr. Abrams added fossil fuel volatility is already generating economic instability today.

“However, the findings do reveal a sector that is beginning to understand the language of transition risk but has yet to act on it at the scale required,” he said.

“For institutions serious about resilience, the priority must shift from target-setting to capital reallocation. That requires honest engagement with fossil fuel phase-out, not just improved disclosure frameworks."

Stefano Pogutz, a professor of practice in corporate sustainability at SDA Bocconi School of Management, said a broad architecture of disclosure frameworks has pushed the financial sector toward climate awareness, but not enough toward actual portfolio decarbonization, in an email.

Pogutz added the WBA report shows this shift remains far too limited.

“For financial institutions, the key climate footprint is not their office emissions; it is what their lending, underwriting and investment portfolios enable in the real economy,” he said.

“Much of mainstream finance is still anchored in models, incentives and routines developed for a world where climate and nature were treated as externalities or long-term uncertainties.

“The sector has become highly proficient at producing transition language but remains painfully slow at changing capital allocation.”