 "UN's NZBA in trouble: Why big banks are pulling out of climate accords")
Several European banks are reconsidering their membership in the Net Zero Banking Alliance (NZBA) amid growing challenges to global climate collaboration, particularly after major US banks withdrew from the group. Executives from top European banks are now re-evaluating their position in the alliance, citing differences in approach to climate action and the potential legal challenges posed by antitrust laws in the US, according to a report by The Financial Times.
What is the Net Zero Banking Alliance?
The Net Zero Banking Alliance, or NZBA, is UN-convened and bank-led initiative, which brings together leading global financial institutions committed to aligning their lending, investment, and capital markets activities to achieve net-zero greenhouse gas emissions by 2050. It was established nearly four years ago with the goal of aligning financial institutions with global net zero targets, part of the broader Glasgow Financial Alliance for Net Zero (Gfanz).
The Alliance serves as a climate accelerator under the United Nations Environment Programme Finance Initiative’s (UNEP FI) Principles for Responsible Banking (PRB), driving the transition towards a more sustainable global economy.
NZBA provides its members with a framework and guidance to help them design and implement net-zero targets. These targets promote long-term sustainability in banking practices.
Membership and climate targets
Upon joining the Alliance, participating banks voluntarily commit to setting and publicly sharing their emissions reduction targets, especially in carbon-intensive sectors. These targets must be set within 18 months of joining, followed by the development of detailed transition plans within 12 months, outlining the steps necessary to achieve these goals. Furthermore, banks must publish a set of sectoral targets covering the majority of carbon-intensive sectors in which they have significant exposure within 36 months.
As of October 2024, the Net Zero Banking Alliance has reached 144 member banks globally, with an additional twenty-three expected to set their targets and publish their transition plans by the end of 2025, the group said in its latest report.
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JPMorgan, Citigroup, Goldman Sachs leave NZBA
The NZBA, the banking sector’s largest climate-focused alliance, has faced significant challenges in recent months with prominent US banks, including JPMorgan, Citigroup, and Goldman Sachs, recently pulling out. Four of Canada’s largest lenders also followed suit. This mass exodus has led to growing concerns among European banks, which are now considering similar exits unless the alliance adjusts its rules.
US political attack on corporate climate policies
The shift comes as right-wing politicians in the US intensify their attacks on corporate climate policies, particularly in light of Donald Trump’s return to the White House. In addition, 22 Republican state attorneys general have accused major banks of colluding to block financing for oil and gas companies, further complicating matters for banks in the US.
A key point of contention is the growing resistance from US-based banks to coordinated action on climate change. With concerns about antitrust issues and potential lawsuits, particularly from conservative states like Texas, many US banks have opted to distance themselves from such climate collaborations.
Why do European banks want to pull out?
This has put pressure on European institutions, who fear being caught between these legal challenges and their commitment to environmental goals.
Last year, members voted to update and strengthen the NZBA’s target-setting guidelines. A notable change includes the requirement for banks with significant capital markets activities to include emissions associated with these operations in their targets.
Gfanz reconsiders its role
Gfanz, which once served as an umbrella for various net zero initiatives, is now reconsidering its role in light of mounting political and legal pressure, especially from the US. This week, the Net Zero Asset Managers initiative, a similar group for asset managers, announced it would cease tracking the implementation of its membership criteria.
What’s next for Gfanz and NZBA?
Amid these developments, the senior ranks of Gfanz have struggled to convene a meeting to discuss the future of climate collaboration. Efforts to arrange a meeting during the World Economic Forum in Davos this week were thwarted by scheduling conflicts, antitrust concerns, and other political distractions, The Financial Times report said.
The group had initially planned to meet in early January but now aims for a session in February to address the alliance’s future.
Gfanz recently acknowledged that it has met its initial objective of laying the groundwork for a financial system that can support the transition to net zero. However, the future of such alliances remains uncertain as political and legal pressures continue to mount on both sides of the Atlantic.