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NZBA Members Told to Scale Climate Ambition

Mass exodus of US, Canadian banks does not need to dampen efforts by remaining members to align with net zero, experts agree. 

Following a series of exits, the Net Zero Banking Alliance (NZBA) has the opportunity to double down on its climate ambition and sharpen its requirements for remaining members. The focus is on European banks to lead the way, experts have argued.  

The six biggest banks in the US quit the global net zero target-setting group at the beginning of this year, ahead of the inauguration of President Donald Trump and more political backlash against climate action. They have been followed by most of their Canadian peers, including the National Bank of Canada, which cited heightened concerns over legal threats to climate coalitions. 

“[North American banks] are among the world’s largest fossil fuel financiers and have shown little motivation to push for a higher net zero standard,” Kevin Leung, Sustainable Finance Analyst of Debt Markets, Europe, at the Institute of Energy Economics and Financial Analysis (IEEFA), told ESG Investor. 

“Major European banks should fill the leadership gap and take a more proactive role within the alliance to drive global coordination in managing climate-related financial risks. The NZBA’s role in developing harmonised standards and actionable frameworks remains crucial as it works with financial supervisors and regulators globally.” 

The NZBA was formed in 2021 to provide guidance and support to banks in reducing portfolios emissions to net zero by 2050.  

“Once Goldman Sachs pulled out in December it was not a surprise that the other Wall Street banks followed them,” said Paddy McCully, Senior Energy Transition Analyst at French NGO Reclaim Finance. 

“It was also not a surprise about the Canadian banks, given the large amount of business they do in the US, including with the fossil fuel industry – plus the fact that they have been only very reluctant members of the NZBA, with none of them being in compliance [with the alliance’s requirements].”  

NGO reports show that both US and Canadian banks, despite their membership to the NZBA, have poor track records, proving themselves to be significant laggards to their counterparts as their fossil fuel financing increased.  

Following this ongoing pressure in the US, earlier this month the Net Zero Asset Managers initiative also temporarily suspended its activities. 

Follow or lead 

There is concern that European banks may also quit the alliance.  

“All major banks will have some – potentially a large amount – of business in the US, and all may fear getting attacked by Trump and his cronies for the temerity of joining the NZBA,” said McCully. 

However, unlike US and Canadian banks, their European counterparts are subject to robust EU prudential frameworks and sustainable finance regulation that pushes them beyond the requirements of the NZBA framework. 

As such, several European banks have taken steps to limit oil and gas expansion. ING has committed to no longer financing new LNG export terminals, while BNP Paribas and Crédit Agricole have halted the structuring of bonds for oil and gas producers. 

“The spotlight is on major European banks,” said IEEFA’s Leung.  

“For them, exiting the NZBA would be an even more significant setback – completely undoing the progress they have made.” 

Last year, the NZBA voted to update and reinforce its climate target-setting guidelines, including extending the scope of these targets to include banks’ capital markets activities. 

However, the NZBA currently does not require its members to limit financing for fossil fuels. 

The NZBA Secretariat has the opportunity to work with remaining members, including the most ambitious European firms, to set a more progressive standard for the industry in a “coalition of the willing”, said Jeanne Martin, Head of the Banking Programme at UK NGO ShareAction. 

“If the NZBA is to be effective going forward it needs to introduce more ambitious guidelines and ensure that members adhere to them,” she said.  

Leung suggested that NZBA signatories should formulate distinct approaches to the fossil fuel sector, such as ceasing new fossil fuel financing to align with the International Energy Agency’s net zero scenario.  

In addition, he called on banks to develop engagement strategies supported by near-term exit plans, shift financing to green and transition-focused opportunities, develop credible sustainable and transition financing tools, and strengthen internal policies to ensure the effectiveness of transition planning. 

Last year, the Science Based Targets initiative consulted on revisions to its Financial Institutions Net Zero (FINZ) standard, which is expected to place banks under more pressure to increase their climate-related transparency and ambition. 

Keep pushing 

Asset owners invested in the banking sector have been encouraged to keep pushing banks for greater transparency and climate ambition. 

“Many asset owners have continued to raise concerns with banks’ performance on climate-related issues over the past few years, despite these banks retaining membership of net zero alliances, as evidenced by various engagements and shareholder proposals,” said Daan van Acker, Director of FinanceMap and Investor Engagement at NGO InfluenceMap.  

“A bank’s NZBA membership status does not change asset owners’ ability to engage with them.” 

Several large banks faced shareholder resolutions during the 2024 proxy season, with investors asking them to provide more details about their Paris-aligned lending activities.   

Despite ongoing engagement efforts, the World Benchmarking Alliance’s (WBA) latest Financial System Benchmark, which assessed and ranked 400 financial institutions – including some of the world’s largest banks – found that only 3% have any transition plans in place, while less than 5% have committed not to support new fossil fuel projects and 6% have targets to scale their financing of climate solutions.  

Banks alone have provided US$7 trillion in loans to the oil and gas sector since the Paris Agreement was established. 

“Asset owners must set minimum expectations for banks on climate change and financing the transition to a net zero economy,” said ShareAction’s Martin.  

“At the very least, this should include a commitment to net zero by 2050, medium-term decarbonisation targets complemented by granular sustainable finance targets, and a plan to phase out [investing in] fossil fuels.” 

If banks fail to measure up to these expectations, investors should use the full suite of stewardship tools that is at their disposal, including filing shareholder resolutions, she said. 

“Asset owners and asset managers need to set red lines on activities that are incompatible with [a] 1.5°C [pathway] – including fossil fuel expansion and deforestation,” said Huw Davies, Senior Finance Adviser at UK campaign group Make My Money Matter. 

The post NZBA Members Told to Scale Climate Ambition appeared first on ESG Investor.

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