In a stunning reversal, six major US banks have quit the Net-Zero Banking Alliance (NZBA) since early December, mere weeks after Donald Trump’s re-election. This exodus from the marquee climate initiative, launched with much fanfare just two years prior, speaks to a seismic shift in the political and business landscape that is prompting financial heavyweights to retreat from their Paris-era climate commitments.
The latest domino to fall was JP Morgan, which pulled out of the NZBA last week even as wildfires raged across Los Angeles, displacing over 100,000 residents. While the human toll of climate disasters continues to mount, America’s banking giants appear to be recalibrating their climate calculus, driven not by the physics of a warming planet but by the new political realities of a post-Trump world.
The Rise and Fall of Green Finance Alliances
Launched in 2021 on the sidelines of COP26, the NZBA was touted by Mark Carney, its co-founder and former Bank of England governor, as the “breakthrough in mainstreaming climate finance the world needs.” The voluntary alliance, which at its peak represented 40% of global banking assets, required members to align their lending and investment with net-zero emissions by 2050 and to submit science-based targets and transition plans.
Yet despite these lofty ambitions, the real-world impact of the NZBA and similar green finance coalitions has been questionable at best. Banks’ climate targets have been widely criticized as opaque and inconsistent, and recent studies show little difference in the fossil fuel financing patterns of alliance members versus non-members. Ironically, overall funding for coal, oil and gas has actually increased since the NZBA’s creation.
The Shifting Risk Calculus
So why are banks jumping ship now from what were essentially toothless talking shops to begin with? The answer lies in the altered risk landscape. Whereas being seen as climate laggards posed reputational dangers in the heady post-Paris days, today the bigger threat in C-suites is litigation for appearing hostile to fossil fuels. Since Trump’s victory, Republican officials have:
- Sued the “Big Three” asset managers (BlackRock, Vanguard, State Street) for alleged antitrust violations over their climate investing strategies
- Accused major financial firms of participating in a “climate cartel” for pushing carbon disclosure and emissions reduction via their shareholder power
- Pulled billions in pension fund investments from BlackRock over its perceived “ESG activism”
Facing this multi-pronged backlash and the specter of antitrust probes, even giants like BlackRock have beat a hasty retreat, quitting the Net Zero Asset Managers initiative last week. For banks, the risk-reward of participation in green clubs has inverted, with membership now a magnet for political and legal jeopardy.
The Illusions of Market-Led Climate Action
More fundamentally, this unraveling exposes the deeper fault lines of the green finance agenda. As economist Daniela Gabor argues, post-Paris initiatives like NZBA and GFANZ (the Glasgow Financial Alliance for Net Zero) represented a push by the private sector to stave off demands for more muscular government intervention, like stringent regulation of fossil financing or large-scale public investment in the green transition.
“For too long, policymakers have placed excessive hope in private finance to resolve issues they hesitate to address through regulation or public policy”
– Hans Stegeman, Chief Economist at Triodos Bank
Ultimately, market-driven mechanisms were never adequate to the task of wholesale economic transformation on a compressed time frame. Treating climate change as just another financial risk to be managed allowed politicians to sidestep the thornier distributional questions at the heart of the crisis: how to unwind fossil fuel subsidies, rein in the outsized power of polluting industries, and equitably bear the costs of a wartime-scale energy transition.
As the green finance edice crumbles, its legacy may prove to be a lost decade, an interregnum during which governments outsourced their responsibilities to a private sector that was never truly incentivized nor empowered to fulfill them. Meanwhile, as climate impacts accelerate and populist forces exploit the elitism of technocratic climate politics, that core political challenge remains, starker than ever.
