And another one bites the dust. This week, the Net Zero Banking Alliance (NZBA) announced that it is polling members on moving from a “membership-based alliance” model to “establishing its guidance as a new framework initiative”.
It is a big comedown for an initiative convened with such fanfare in the heady days of 2021. But the news cannot come as much of a surprise to anyone who has been following the alliance’s travails this year.
After suffering an exodus of US, Canadian and Japanese banks in Q1, NZBA tried to stem the tide by proposing to allow 2C as a climate target and soften language around implementation – a proposal that was “overwhelmingly” backed by members.
Yet the dominoes kept falling. In mid-July, HSBC became the first UK bank to leave the alliance. Three weeks later, it was joined by Barclays, which in turn was followed out of the door by UBS, marking the first departure from continental Europe.
Even before that, rumours had been circulating that some of the big EU lenders were eyeing the exit, which would have left NZBA woefully light on heavy hitters. This week’s announcement suggests the reports were correct.
And of course, it is not only banks that have been abandoning net-zero alliances. The Net Zero Asset Managers initiative has been in limbo since suspending activities in January after the departure of market leader BlackRock. The insurance equivalent was shuttered by the UN Environment Programme in early 2024.
And the Net Zero Financial Service Providers Alliance, surely the most improbable of the groups brought together ahead of COP26 under the GFANZ umbrella, failed to take any actions of note before the departure of its largest members.
The power of engagement
How much does all this matter? Well, that depends on who you ask and how upbeat they are feeling.
Taking the glass-half-empty perspective, it is depressing to see opponents of climate action notch yet another win.
Many of the exits from the various alliances were driven by extreme pressure from the US right, which leveraged a lethal combination of political grandstanding and legal threats related to purported antitrust concerns to batter firms into submission.
And it is not only US institutions that have felt the heat. The rumours around possible departures from NZBA by big EU lenders suggested that they too were worried about the antitrust implications of membership.
As well as being disheartening in itself, this also bodes ill for the future.
In the sustainable investment world, we talk a lot about impact and effective engagement. There can be little doubt that the engagement by the anti-ESG brigade over the past three years has been wildly successful.
With tailwinds from the new US administration filling their sails to bursting point, it is hard to imagine they will stop now – and the risk is that they cast their nets ever wider.
It was worrying to see the Principles for Responsible Investment (PRI), a sustainability-related institution that has so far managed to fly largely under the right-wing radar, name-checked in the latest anti-ESG letter from the State Financial Officers Federation.
Reasons to be (slightly more) cheerful
For those of a more glass-half-full persuasion, however, there are reasons to be at least slightly more cheerful.
There are valid questions about how useful the alliances were. Leaving aside the fundamental issue of whether it makes sense for financial institutions to target net zero if the wider economy is not there yet, the lack of strategic planning undertaken by some banks and asset managers before joining them was startling.
In the run-up to COP26, GFANZ supremo Mark Carney and the alliances themselves – and, it has to be admitted, some sustainability teams – happily used peer pressure to bounce organisations into joining.
A market source tells the story of a big bank CEO who, when urged to join NZBA by his sustainability team, asked what it would cost. “Nothing,” they blithely answered, “we won’t have to do anything we’re not already doing.” “Fine, sign us up,” he said, perhaps looking forward to his big moment on stage in Glasgow.
Equally, not all senior managers were guilty of side-stepping due diligence and strategic planning in an excess of enthusiasm and optimism.
While it may be tempting to be sceptical about statements by NZBA and NZAM leavers about their enduring commitments to net zero, some of the biggest players from the US and beyond had made net-zero pledges well before the pre-COP26 pile-in.
And with NZAM at least, asset owners tell us that leaving the organisation – and others such as Climate Action 100+ – has meant asset managers are working harder to prove their sustainability credentials now that they can no longer use membership as a shortcut.
In short, there is no reason to treat net-zero alliances as sacred cows. Their passing or neutering does not mean the end of net zero, or of climate action by financial institutions.
What it does mean is an evolution in the way financial institutions approach those concepts – and evolution in such a new field is natural and desirable. Net-zero alliances were a nice idea, but it would have been astonishing if all the ideas that were trialled in the 2020-21 ESG bonanza proved fit for purpose in the long term.
Perhaps this one only ever really made sense for asset owners, who can collaborate without being accused of collusion, and are answerable to trustees and beneficiaries rather than shareholders.
For banks, asset managers, insurers and even service providers, there may well be better ways to pursue climate goals.
Lucy Fitzgeorge-Parker is editor of Responsible Investor.
