A climate-aligned financial system: leverage points for transformation

A transformation of the financial system is needed, as investments in climate mitigation remain insufficient to achieve the goals of the Paris Agreement and fossil investments persist. Research on climate finance has focused on policy tools and actors, but lacks a holistic system perspective. Drawing on three Group Model Building (GMB) workshops with Dutch financial actors, this participatory study develops a qualitative system dynamics model that reveals mechanisms driving (un)sustainable investment behaviour, and, guided by Meadows’ leverage point framework, identifies interventions and policies for transformative change. Findings suggest that reinforcing feedbacks (including learning, lock-in, passive investment, and system culture) can accelerate investment in sustainable assets. However, additional short-term coordinated action is needed. To this end, seventeen interventions for asset managers, asset owners, finance educators, supervisors, policymakers, civil society and researchers are proposed. The study advances system-level understanding of sustainable finance and supports policy design and coordination across the financial sector.