 "A global rush: Banks are pulling out of net zero alliance, a jolt to fight against climate change")
In a major blow against climate change, a host of world’s largest financial institutions have withdrawn from a major global climate financing initiative – Net-Zero Banking Alliance (NZBA). The global body of central banks and regulators is dedicated towards exploring ways to police climate risk in the financial system.
This rush to exit the net-zero banking alliance comes as world leaders, important business and industry personnel gathered on Monday at Davos, a town in Switzerland, for the annual World Economic Forum (WEF) where they will discuss and respond to geopolitical shocks and talk about how to facilitate growth to improve living standards.
The flight of banks from the UN-sponsored NZBA began at the start of December when six top US banks — Citigroup, Bank of America, Morgan Stanley, Wells Fargo, Goldman Sachs and JP Morgan — pulled out from the coalition.
But, what is Net-Zero Banking Alliance?
The NZBA is convened by the UN Environment Programme finance initiative but led by banks. Launched in 2021, it encourages members (financial institutions) to align their lending, investment and capital markets activities with net zero greenhouse gas emissions by 2050 or earlier, as well as limit the effect of climate change and push towards achieving net-zero emissions.
US Fed withdraws from global regulatory climate change group
In the latest, the US Federal Reserve announced on Friday that it was exiting the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) because its increasingly broadened scope had fallen outside the Fed’s statutory mandate. It joined the group in 2020.
Fed’s withdrawal came barely three days before Donald Trump is set to take office on Monday (January 20). The US President-elect Trump has been critical of efforts by governments to prescribe climate-change policies.
Canada’s 4 biggest lenders pull out from global banking sector climate coalition
The same day, four of the biggest lenders in Canada – TD Bank, Bank of Montreal, National Bank of Canada, and Canadian Imperial Bank of Commerce – also announced that they were pulling out from a global banking sector climate coalition.
The Canadian banks in separate statements said they were equipped to work outside the alliance and develop their climate strategies.
“The NZBA was formed at a time when the global industry was scaling up efforts to take action on climate, and served a valuable role in galvanising these efforts and establishing momentum,” Canadian Imperial Bank of Commerce said in a statement.
Impact Shorts
More Shorts“As this space has evolved and matured, and having made significant progress alongside our clients in these areas, we are now well-positioned to further this work outside of the formal structure of the NZBA,” it said.
European banks threaten to pull out
Amid this, top lenders in Europe on Monday (January 20) threatened to pull out of the climate alliance unless it softens its rules, as executives on both sides of the Atlantic worry about the future of net zero collaboration ahead of Trump’s inauguration.
Why are world banks pulling out of NZBA?
The Net Zero Asset Managers, quoted in a report by Financial Times, said, “Several banks have said that unless the banking alliance goes the same way [as] the asset management initiative, they will begin the process to leave,” said one person familiar with their thinking. Those lenders wanted to “end all formal tracking and any issues that are perceived contrary to US antitrust."
Meanwhile, a report by The Guardian cited analysts as saying that the withdrawals are an attempt to head off “anti-woke” attacks from rightwing US politicians, which are expected to escalate when Trump is sworn in as the president.
Trump’s vows to deregulate the energy sector, dismantle environmental rules and “drill, baby, drill”, were a big part of his campaign platform and are expected to form a key part of his blueprint for governing the US, which is the world’s biggest oil and gas producer.
Citigroup was one of NZBA’s founding members. A spokesperson for the bank said Citigroup’s decision to quit would allow it to “focus on addressing barriers to mobilising capital to emerging markets in support of the low-carbon transition… We remain committed to reaching net zero and continue to be transparent about our progress."
Detailing its decision of withdrawal, JP Morgan said it would “work independently to advance the interests of our firm” and its customers and shareholders, while remaining “focused on pragmatic solutions to help further low-carbon technologies while advancing energy security”.
A spokesperson for Goldman Sachs said the bank was “very focused” on increasingly stringent standards and reporting requirements imposed by regulators, and insisted the bank had “made significant progress … on the firm’s net zero goals”.
With inputs from agencies
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