© Ben Sutherland
An exodus of US banks from the Net Zero Banking Alliance (NZBA) has raised questions over the effectiveness of volunteer groups and whether more mandatory measures are needed to ensure countries reach their climate goals.
By early January, six major US big banks, including JP Morgan, had left the UN-sponsored alliance. Banks in other countries have also followed, with four Canadian banks announcing on Friday that they were also leaving the NZBA. In addition another coalition, the Net Zero Asset Managers initiative, announced earlier this month that it was suspending its activities after the departure of BlackRock.
The banks did not give insight into why they left but some analysts have suggested it may be due to concern about political backlash, as incoming US president Donald Trump is expected to oppose any green transition efforts. A Republican-led battle against ESG investing has been raging for years, with some states suing asset managers for taking ESG factors into account when managing retirement accounts.
But Trump’s election is “an easy way out” for American banks that don’t want mandated climate disclosure rules, said Paul Schreiber, a senior policy advisor at thinktank Reclaim Finance.
“They’ve been using those institutions [like the NZBA] for a few years to avoid additional regulation to shield them from reputational risk, and that at the end of the day … they are just exiting,” he said.
Regulations and mandates are needed as even the best organisations do not mean anything if banks can leave at any time, Schreiber added.
“We should be very careful when we think about the contribution of these associations to fighting climate change because the requirements to be a member of these associations are pretty, pretty low, you don’t really have any obligation [other than target setting],” he said.
Banks existing NBZA are ‘science and financial reality deniers’
Schreiber isn’t the only one sceptical of volunteer net-zero groups. A research paper from the European Central Bank (ECB) found that voluntary climate commitments may not be effective in reducing financed emissions.
In a statement, New York City comptroller Brad Lander condemned the financial institutions for exiting the volunteer groups, calling it a “shortsighted, weak-kneed” decision that denies the reality of climate change.
“By absconding from their responsibilities to combat climate change, these financial institutions are yielding to the authoritarian tone set by the incoming Trump administration. They are, in essence, becoming science and financial reality deniers,” he said.
John Kostyack, a climate strategist, thinks collaborations like the NZBA are valuable only when there is true commitment from financial institutions. He was not surprised when US banks announced they were leaving, as he says they have not been working on a trajectory towards net zero.
In the end, it was just a signal to Republicans that they were listening “but it doesn’t change any actual behaviour on the part of the banks”.
However, the US banks have not gone back on their net-zero efforts and Kostyack said he expects the big institutions will still have climate pledges as “it’s really hard to be a global institution and ignore the fact of climate change”.
US banks may still need to publish transition plans and disclose their carbon emissions, as other jurisdictions like California and the EU make it mandatory.
“We’ve learned from the 2008 crash that voluntary oversight [and] self-oversight of the industry does not work,” said Kostyack. The fact that financial institutions continue to invest in fossil fuels, sending a market signal that they do not consider it a risk, is a regulatory failure, as “banks are just not willing to [consider climate risks] without more strict oversight”, he added.
Ben Cushing, campaign director at Sierra Club, said financial institutions need to phase out their fossil fuel investments to meet their net-zero goals and while the NZBA plays an important role, what matters is the policies companies set. It is up to regulators and shareholders to hold banks accountable, he added.
“If Wall Street banks acquiesce further to climate denier politicians and fail to follow through on their climate commitments, it will isolate the US on the global stage, and the enormous costs will fall upon our global economy, financial markets and vulnerable communities,” he said.
A spokesperson from the NZBA declined to comment.
This page was last updated January 27, 2025
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
