The exit of several high profile banks and investment firms from the Net Zero Banking Alliance (NZBA) risks eroding public trust in these institutions, a new report by the Institute for Energy Economics and Financial Analysis (IEEFA) has suggested.
In recent months prominent financial institutions and investment firms such as Bank of America, Macquarie, Citigroup, Goldman Sachs, BlackRock and others have exited the NZBA, a UN-backed initiative that aims to unite global banks in efforts to align their lending and investment portfolios with net-zero emissions by 2050.
As of October 2024, the alliance included 144 banks across 44 countries, with combined assets of $74 trillion – or 41% of global banking assets. However, the wave of departures, which commenced at the end of last year, means that 39% of the total assets incorporated into the alliance have now exited, raising questions about its future.
‘Superficially committed’
“The banks that exit these alliances may have been only superficially committed to climate goals,” the IEEFA‘s Ramnath N. Iyer and Shu Xuan Tan commented. “However, alliances gain leverage and influence through scale, and withdrawals by some of the world’s largest financial institutions can diminish their ability to exert pressure on carbon-intensive industries to transition.
“Reduced influence in promoting sustainable practices and increased financial support to fossil fuel sectors can significantly delay the energy transition. Therefore, the withdrawal of these banks is consequential.”
As they note, public trust in these institutions is likely to have been damaged by their decision to exit, echoing the drop off in trust in the financial sector during the economic crash of 2008/09.
“Many bank customers suggest they care deeply about the climate, to the point of choosing financial service providers based on their climate-friendliness,” Iyer and Tan added.
Additionally, the exit of these banks risks creating fragmented and non-standardised reporting practices, making it more challenging for investors and policymakers to assess the financial sector’s contributions to climate goals.
Asia steps up
As the authors put it, Asian banks would be “ill-advised” to follow their North American peers in withdrawing from the NZBA, particularly as the shift towards renewable energy is becoming an increasingly valuable economic sector in Asia.
“This shift makes a compelling case for banks and financial institutions to maintain their commitments, remain aligned with global climate goals, and achieve significant profits. Power and energy systems are the backbone infrastructure of any country or region,” they commented.
Currently, some 18 Asian banks are part of the NZBA, boasting combined assets of approximately $5 trillion. Five of these are located in Southeast Asia. Read more here.
