Financial institutions appear to be less and less inclined to make climate commitments, with a drop in the number of fossil fuel policies adopted in the past couple of years. But do such policies actually change the behaviour of financial institutions, or contribute to changing the real economy? Or were they only ever symbolic gestures? Two new academic studies suggest that financial institutions’ climate commitments are central to climate action. And they could have a snowball effect which could reverse the current trend by influencing peers and clients.
The first study, “Can Finance Save the World? Measurement and Effects of Coal Divestment Policies by Banks” (Harvard Business School (HBS), 2024), is notable for being one of the first to rigorously quantify this link: coal firms facing strong coal policies from their lenders reduced their borrowing by a quarter compared to unaffected peers, with capital rationing leading to facility closures and CO2 reductions. The second, “Insurers’ Carbon Underwriting Policies” (University of Zurich (UoZ), 2025), extends this finding to insurers, showing that those with coal policies actually implement them — with measurable consequences for the coal assets they cover. Together, these studies provide some of the strongest empirical evidence to date that financial sector commitments are not merely symbolic.
Policies induce a change in behaviour of financial institutions that adopt them
The UoZ study finds that insurers with formal “carbon underwriting policies” reduce the number of coal mines they insure by 16%, cutting insured coal volumes by 56% (1). This demonstrates that institutions tend to act on the commitments they adopt — or that concrete action can occur simultaneously as formalization in a policy. Here, the term ‘formal policies’ can refer either to restrictions on standalone project-level coverage or to wider restrictions, and effects are visible even with project-level commitments. Taking the example of North American insurance companies, Travelers and Chubb both show a decrease in the number of coal mines they insured between 2014 and 2024, while W.R. Berkley, Berkshire Hathaway, and Starr — none of which have a coal policy — show an increase over the same period (2).
Going beyond theory, for banks, the impact of sector policies is also visible through an analysis of financing flows. The wave of coal policy adoptions, which began in the mid-2010s and continued into the early 2020s (3), is consistent with a decline in coal bank financing. At its peak, approximately $15 billion was allocated by European banks to coal companies in 2018, but this fell to just over $6 billion in 2023 (4). And between 2015 and 2023, over 80 international banks adopted coal policies, including all of the largest European banks.
Significant impacts become evident when major players impose meaningful restrictions on their activity. This is also illustrated by the oil and gas financing figures for the French banks Crédit Agricole and BNP Paribas, both of which ceased providing bond support to oil and gas producers in 2024. BNP Paribas’s financing to upstream oil and gas in 2025, for instance, saw an 80% decrease compared to the previous year (5).
If sector policies as a whole do curb support for fossil fuels, a finer level of analysis is needed to better understand their impact. According to the HBS research, the change for institutions is significant if the policies are:
- Comprehensive in their coverage (covering corporate as well as project finance, lending as well as underwriting);
- Transparent (tied to measurable criteria like revenue share, expansion, etc);
- Scheduled (with credible phase-out timelines, or immediate.
The strength of a policy is a strong predictor of actual lending behavior. The HBS study suggests that the stronger the policy, the larger the reduction, as a one-notch increase in policy strength is associated with a 19–24% decline in coal financing from that bank (6). The UoZ study also assumes that the relative softness of current oil and gas policies compared to coal policies partly explains why the effects of oil and gas policies are less visible (7).
Do policies have a snowball effect?
Another important finding is that the impact of a policy might not be limited to the institution that adopts it. It also has an impact on its corporate clients and, indirectly, other banks. According to HBS, for companies, a one-notch increase in exposure to a bank with a coal policy “results in a 20% reduction in annual debt issuance” (8). When one financial institution has a policy restricting support for a mine project, it is more likely that the mine will shut down or not be built, as reputational risk increases. In one striking example, the chief financing officer of Whitehaven Coal, an Australian coal mining company, admitted that it was “increasingly difficult being a coal producer to attract external funding.” (9)
Other research has indicated that the development of ESG criteria, which include restrictions for carbon-intensive sectors, has increased insurance rates for coal companies (10).
Impacts vary depending on the size of the institution, and the larger the institution, the clearer the signal. Indeed, the vast majority of coal exploration and production is supported by just a few banks. As a result, these banks have a greater degree of sway in the sector, which means that taking just one bank out of the picture can have a large impact. This is confirmed by other studies, with one study concluding that the size of a bank involved in policy change and its centralness and importance in syndication networks have a critical influence on the impact of the change (11).
With global financing for fossil fuels currently rising, more policies are needed to reach a tipping point. If an ever growing number of banks adopt robust fossil fuel policies, the cost of continuing to support fossil fuels should increase for other banks (12), and the search for other financiers by companies should be harder (13). At the moment, the reverse is happening. In 2024, coal financing figures began to rise again, coinciding with the first major banks — all North American — rolling back their coal policies. This trend continued in 2025, when eight banks backtracked on policies, four of which dropped their commitments entirely (14).
This trend continued in 2025, when eight banks backtracked on policies, four of which dropped their commitments entirely (14).
Global fossil fuel financing figures also increased in 2025, for the second consecutive year (15). This illustrates the risk of a self-fulfilling prophecy: by leaving their policies unchanged or weakening them, some banks are creating the conditions allowing capital substitution, i.e. the ability of institutions with more permissive policies to replace those with more ambitious ones as a source of financing for some sectors — often called the Achilles heel of climate finance (16). This must be addressed through international financial regulation and continued pressure on financial institutions, including the largest ones, so they maintain or improve their climate commitments.
Sector policies work when well-designed. They meaningfully reduce financial support to coal and create ripple effects beyond the institutions that adopt them, and have very real impacts on companies. But their success depends on continued and broad adoption throughout the financial sector. Reclaim Finance calls on financial institutions to adopt robust fossil fuel policies, comprehensively covering the coal and oil and gas sectors, and calls on financial institutions that already have one to maintain it. This must urgently be complemented by stronger international regulation in order to consolidate the gains made and make them last.
