Why US Banks are Departing from Net Zero Banking Alliance

The Net Zero Banking Alliance (NZBA), established under the United Nations' auspices, is crafted to guide banks across the globe toward lending and investing that zeroes out greenhouse gas emissions by 2050. This group quickly drew in some of the world's banking giants, with a clear focus on integrating sustainable practices and staunchly promoting net zero objectives.

However, recent weeks have seen some of the largest US financial institutions step back from the alliance, marking a significant shift in the group's makeup.

Institutions like Citigroup, Goldman Sachs, Wells Fargo, Bank of America and Morgan Stanley have opted to leave NZBA, now leaving JPMorgan Chase as the solitary large US bank remaining.

While none of the organisations have cited specific reasons for leaving NZBA, they are all leaving between Donald Trump’s election and inauguration. The incoming US President is publicly in favour of oil and gas investment, and has referred to climate change as a “hoax”, which is raising concerns for how the US will impact global sustainability going forward.

When Goldman Sachs joined NZBA in 2021, David Solomon, the Chairman and CEO, highlighted the importance of collaborative effort between public policy makers and business sectors: "Collaboration will be an essential part of achieving the goal of a net zero economy and the NZBA, with its industry-led platform, has an important role to play in facilitating decarbonisation and effective capital allocation to the real economy," he said in 2021. 

Initiative Overview

The NZBA was brought into existence on 21 April 2021 by 43 leading global financial institutions as a part of the United Nations Environment Programme Finance Initiative (UNEP FI). It was a response to the urgent demand for climate action and aligns closely with the Paris Agreement's goals. Banks that joined have committed themselves to reconfigure their lending and investment strategies to be in line with a pathway that reaches net zero by 2050 or sooner.

Banks, by joining the alliance, pledge to align their financial portfolios with net zero emissions by 2050, set intermediary goals targeting 2030 or earlier, focus on sectors that are heavy carbon emitters, and report their emissions and progress annually. Despite the decrease in US bank participation, the NZBA still boasts a membership of 142 banks from 44 countries. This collective now stands as a pivotal player in global banking, holding sway over $64tn in assets, now skewed slightly more towards European banks like HSBC, Barclays, and BNP Paribas.

Noel Quinn, the former CEO of HSBC when the bank joined the NZBA in 2021, emphasised the banking sector's role: "A commitment to financing the transition to net zero is essential. It’s important that the banking sector is committed to providing the financial support needed to help customers on that transition," and added that a "robust and transparent framework for monitoring progress against that objective" is vital for the industry.

UNEP Financial Steering

The broader umbrella under which the NZBA operates is the UN Environment Programme’s Finance Initiative, pivotal in marrying the UN's environmental objectives with the financial sector's capabilities. Launched in 1992, the UNEP FI was the first to align financial market mechanisms with sustainable growth and remains a leading authority on responsible investment methods.

Over 500 banks and insurers, managing assets well in excess of $170tn, are currently adopting UNEP FI's principles, which dictate the responsible banking and sustainable insurance practices globally. These principles guide financial institutions in not only acknowledging but actively mitigating environmental risks associated with their operations and financial allocations.

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