By Alexander Jones, International Banker
On January 7, JPMorgan Chase announced that it would leave the Net-Zero Banking Alliance (NZBA). In so doing, it became one of the latest in a growing line of major lenders—mainly from the United States and Canada—to vacate their positions in the global banking sector’s biggest climate coalition, just as the new US presidential administration has taken office. As such, it delivers a clear signal to the world that North American banking’s collective commitment towards climate action and sustainability will decisively fade during the Trump 2.0 era.
Launched in April 2021 by the United Nations Environment Programme Finance Initiative (UNEP FI), the NZBA is a bank-led, UN-convened alliance of leading global banks that are committed to aligning their lending, investment and capital-markets activities with the goal of achieving net-zero greenhouse-gas (GHG) emissions by 2050. At present, UNEP FI records 135 banks from 44 countries as members of the NZBA, with a combined $56 trillion of total assets.
“NZBA’s framework, guidance, and learning opportunities support members to design, set, and achieve credible science-based net-zero targets for 2030 or sooner that deliver value for their investors and clients,” according to the UN agency, which has been connecting the UN with financial institutions worldwide to shape the sustainable-finance agenda for more than 30 years. “Members are making important progress. Well over 100 NZBA banks have now set individual and independent science-based sectoral 2030 targets for their financed emissions using 1.5°C scenarios.”
However, with the commencement of Donald Trump’s second presidential term, times are now dramatically changing. Indeed, JPMorgan’s withdrawal from the NZBA comes hot on the heels of the exits of fellow banking giants Citigroup, Bank of America (BofA), Morgan Stanley, Wells Fargo and Goldman Sachs—all in the space of less than one month. The six banks collectively account for around $15 trillion in assets—or 62 percent of the US banking industry—underlining the scale of the loss that the NZBA has experienced.
And despite the coalition managing to gather a serious head of steam throughout the previous administration of US President Joe Biden—during which membership numbers ballooned from 43 banks at its founding in April 2021 to more than 140 banks at its peak last year—the changing of the guard in the White House has prompted a major exodus among the US’ biggest banks, a trend reversal that is almost entirely reflective of the Trump Administration’s pro-fossil-fuel, pro-business agenda.
Indeed, Republican politicians have escalated their condemnations of the ESG (environmental, social and governance) movement over recent years, with US banks often on the receiving end. In his first week in office, moreover, Trump signed a flurry of executive orders that could have profoundly adverse consequences for the environment and the battle against the climate crisis. Once again, Trump has pulled the US out of the Paris Agreement, as he did during his first term, with Biden later reinstating the US’ membership.
Moreover, the US president has also declared a “national energy emergency” and promoted oil and gas expansion through eminent domain—whereby the government can acquire private property for public use—and the Defense Production Act, which enables the government to use private land for production that is deemed a national necessity. Trump also infamously applied the “Drill, baby, drill!” slogan to characterise his energy policy during his election campaign, clearly indicating that fossil-fuel production is high on the Trump agenda and that the US’ commitment to sustainability is likely to fall by the wayside.
With lending restrictions on the world’s biggest industrial polluters likely to be lifted as a result of their departures from the NZBA, banks are only too happy to oblige. “The sudden exodus of these big US banks out of the NZBA is a lily-livered effort to avoid criticism from Trump and his climate denialist cronies,” Paddy (Patrick) McCully, a senior analyst at the campaign group Reclaim Finance, told The Guardian shortly after JPMorgan’s exit announcement. “A few years ago, when climate change was at the front of the political agenda, the banks were keen to boast of their commitments to act on climate. Now that the political pendulum has swung in the other direction, suddenly acting on climate does not seem so important for the Wall Street lenders.”
That pendulum swing certainly appears to be a decisive one, with a slew of financial institutions retreating from their environmental commitments in recent weeks amid the increasingly hostile environment for climate advocacy, with the NZBA suffering perhaps the most acutely from this sea change. Indeed, the departures of banks have not just been confined to the United States. On January 17, four Canadian lenders also confirmed their withdrawals from the banking alliance, just four days prior to Trump’s official inauguration as the US president.
TD Canada Trust Bank, Bank of Montreal (BMO), National Bank of Canada (NBC) and Canadian Imperial Bank of Commerce (CIBC) explained in separate statements that they were equipped to work outside the Alliance and develop their own 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 galvanizing these efforts and establishing momentum,” CIBC asserted in a statement. “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.”
These exits were then followed by the significant departure of Canada’s biggest bank, Royal Bank of Canada (RBC), on January 31. “We have informed the NZBA that we will be departing the organization, as we now have the tools and capabilities to help implement our climate strategy and measure our performance,” an RBC spokesman confirmed. “We will continue to focus our efforts on supporting our clients to help them address climate change and succeed in the transition to a low-carbon and resilient economy.” RBC’s chief executive, David McKay, has since contended that the withdrawal does not necessarily indicate a non-commitment to net-zero goals. “It just means that mechanism, that organization that fostered oversight and policies and rules around what you can and can’t do and how you report, is maybe not the right mechanism to do it,” McKay insisted.
The “buy side” of the industry, meanwhile, has seen asset managers previously bound to similar climate initiatives also heading for the exits. Early January saw BlackRock confirm that it would leave the Net Zero Asset Managers (NZAM) initiative. Launched in December 2020, NZAM “aims to support the asset management industry to commit to a goal of net zero emissions in order to mitigate financial risk and to maximise [the] long-term value of assets” and is a formal partner of the United Nations Framework Convention on Climate Change’s (UNFCCC’s) Race to Zero campaign. However, according to the world’s largest asset manager, membership in the initiative “caused confusion regarding BlackRock’s practices and subjected us to legal inquiries from various public officials”.
As for US participation in the NZBA today, just three American banks remain part of the 135-member strong coalition—Amalgamated Bank, Areti Bank and Climate First Bank—none of which have anywhere near the financial clout or global influence commanded by the six recently departed banks. “These exits reveal the inadequacy of voluntary commitments and underscore the urgent need for state-level leadership and regulation to protect state and national climate progress and economic stability,” Vanessa Fajans-Turner, executive director of Environmental Advocates NY, recently explained to sustainability-focused publication ESG Dive.
Nonetheless, those remaining few US banks stand defiant amid the departures. “Climate change is real, and we will continue to work closely with Net Zero Banking Alliance as well as other banks, businesses, communities and individuals to finance a more resilient, renewable future,” Climate First Bank’s chief executive officer, Ken LaRoe, recently confirmed to climate-focused digital media outlet Trellis. “Simply put, siloed action without accountability—even if real—isn’t enough. This is nothing more than GOP political games that will cost investors, public pensioners, taxpayers—and the world—dearly.”
Toby Kwan, a senior manager at the UK-based business-decarbonisation consultancy Carbon Trust, meanwhile, insists that the US banks’ exits from the NZBA will not prove fatal for the Alliance. “While these major financial institutions leaving the alliance raises a question mark on the future of climate action in the financial sector, the remaining NZBA members represent a significant portion of the global banking sector, controlling approximately 40% of global banking assets, or $64 trillion,” Kwan told The Guardian. “This substantial influence cannot be understated, and NZBA members can drive the transition to a net zero economy.”