This week the United Nations-convened Net Zero Banking Alliance (NZBA) overwhelmingly voted in favour of abandoning its commitment to “transition all…attributable GHG emissions from our lending and investment portfolios to align with pathways to net-zero by mid-century…consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100”. The alliance has embraced the less ambitious and far more dangerous target of ‘well-below 2°C’, while watering down requirements for its members on target setting and reporting.
There has been much speculation about the future of the NZBA in recent months following an exodus of some of its biggest members. In January, six major US banks including Wells Fargo, Bank of America, and Goldman Sachs, left the alliance ahead of Donald Trump’s return to the White House. Since then all three Japanese megabanks, all major Canadian banks and Australia’s own Macquarie have exited the alliance.
Unsurprisingly, many of the banks that have left consistently rank among the biggest financiers of fossil fuels in the global banking sector. Some commentators hoped the exit of climate laggards from the alliance might embolden the remaining banks to reaffirm their commitment to limit warming to 1.5°C. Those hopes have been dashed.
NZBA banks have been part of the problem
It’s ironic that the NZBA has retreated on its ambition to limit warming to 1.5°C after many of the largest banks in the alliance undermined any chance of reaching that goal through their reckless financing decisions. Since its inception in 2021, the alliance has fundamentally failed to tackle the sector’s biggest contribution to climate change – the financing of fossil fuel expansion.
The world’s climate science community has clearly stated that fossil fuel expansion is incompatible with limiting warming to 1.5°C for years. Despite the NZBA acknowledging that banks have a role to play in supporting the energy transition by “providing financial solutions… to their clients and partners as they seek to transition to a low-carbon economy”, NZBA banks have instead continued to pour hundreds of billions into companies with no intention of transitioning away from coal, oil and gas.
In 2023 alone, NZBA member banks provided at least US $253.1 billion to companies expanding fossil fuels. In 2024, BankTrack found that the vast majority of major NZBA members still had no exclusions on financing companies developing new oil and gas projects, policies totally at odds with the science.
This week the NZBA reinforced that one of its ‘principles’ is having an “Impact in the real economy”, yet it has failed to do so in the four years it has existed. As an example, it claims that “more than 100 banks” in the NZBA have set 1.5°C-aligned targets. Yet, these are generally limited to banks’ ‘financed emissions targets’, a metric which has been shown to be a fundamentally flawed method of measuring real-world decarbonization. These targets achieve little more than allowing banks to greenwash their fossil fuel portfolios and financing decisions.
Beyond the discussion around 1.5°C or even well-below 2°C, the UN forecasts that the world is on track for up to 3.1°C of warming if we continue on our current trajectory. Given that the world’s 60 largest banks have committed almost US $7 trillion to fossil fuels since the Paris Agreement was signed in late 2015, it’s hard to deny the sector has had a massive hand in contributing to the situation we find ourselves in.
The NZBA has come to its members’ defence in recent times, saying that banks can’t do it alone while passing responsibility for achieving the 1.5°C goal to governments around the world.
This drastically underplays the role banks have to play. As long as major banks are willing to continue providing or arranging the debt finance their fossil fuel clients need to expand, history suggests they will keep doing it, and temperatures will continue to dangerously rise.
Transition plans are the key to real economy impact
There is an apparent solution for banks to take here. The NZBA has failed to deliver real-world impact because it’s been focused on the wrong metrics.
Banks should be looking at each current and potential fossil fuel client for alignment with the Paris Agreement. As both the public and private sector have become increasingly wary of the enormous risks from climate change, there’s been an increasing focus on the climate transition plans (CTPs) of companies in the world’s highest emitting sector.
A climate transition plan is an action plan where companies outline a credible strategy for reducing emissions in line with the goals of the Paris Agreement to investors, financiers, governments and regulators.
The reason for this focus on CTPs is simple: if banks want to deliver impact in the real-economy, they need to understand the plans of the companies they’re supporting. If those plans are full of new fossil fuel projects and aligned with catastrophic levels of warming, any bank committed to 1.5°C should be refusing support.
Achieving the Paris goals is two-fold. It involves a rapid and just transition to a clean energy system and a winding down of fossil fuel production in line with scientific recommendations. If we don’t make progress on the latter, the current targets and temperature ambitions aren’t worth the paper they’re written on.
Banks should be ceasing support for companies which seek to put us on a path towards dangerous warming and directing their substantial financial resources towards those building the clean energy system of the future.
That’s how banks can contribute to real-world decarbonization.
Image credit: Travis Leery