Watch for these signs on whether banks remain serious about net zero

The Net Zero Banking Alliance (NZBA) quickly snowballed during President Joe Biden’s term in 2021, attracting 43 member banks to advance a low-carbon global economy. Yet it appeared to melt just as rapidly as President Donald Trump returned to power.

The world needs $4 trillion in clean energy investments by 2030 to reach net zero, according to the International Energy Agency. Whether financial institutions will deliver that is anyone’s guess.

Since early December, the six largest U.S. banks, about 8 percent of the global banking market, have fled the alliance. Those corporations, Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan Chase, represent about 62 percent of the nation’s overall banking industry, collectively nearly $15 trillion in assets.

And in January, the Canadian heavyweights Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce and the National Bank of Canada left the NZBA. In addition, the alliance’s umbrella organization, the Glasgow Financial Alliance for Net Zero (GFANZ), significantly narrowed its focus to supporting developing regions with decarbonization. And the GFANZ sub-alliance of asset managers paused its work after losing BlackRock.

With these U-turns on collective action, watchdogs accused financial institutions with adding fuel to the fire of the climate crisis, and placating Trump-allied lawmakers who sweeten conditions for the fossil fuel lobby.

Training wheels off

But how much is net zero progress by financial giants subject to the swings of the political pendulum? None of the U.S. banking giants said it will dial back its individual net zero targets.

The ambitions of joining GFANZ sub-alliances may have been overstated because banks had a mix of business and political reasons for both entering and leaving it, according to Brian O’Hanlon, managing director of climate-aligned finance at RMI, in Washington, D.C.

“There is no stoplight about ‘ambition, good ambition; bad ambition, off’ that you can put into place,” he said. “The change in GFANZ means that we need to take the training wheels off and become as sophisticated in looking at impact of climate and investment as you would be for financial performance.”

Thanks to GFANZ, financial institutions took a major step forward to provide similar data about their climate impacts, according to O’Hanlon. “However, we are now moving into this place of transition that hard choices have to be made, both at the society level, at the government level and at the business level, and you’re starting to see tensions that are coming into place here as well, now that financial institutions are leading.”

What the giant banks say now

Most of the U.S. banks departing from the NZBA issued terse statements about their reasons. However, Citigroup recently expressed optimism that low-carbon energy will advance globally, regardless of the White House’s actions. “For advocates of clean energy transition, the power of economics will prevail,” wrote Citigroup analysts led by Anita McBain, managing director and head of ESG research for Europe and the Middle East, on Jan. 27.

“Our business hasn’t changed,” a JPMorgan Chase spokeswoman told Trellis. “Our strategy hasn’t changed. We continue to support clients. We continue to see opportunities in the low carbon transition.” The bank maintains that it treats the low-carbon economic transition as an enormous economic opportunity. In 2022, for instance, it led a $200 million funding round to cleantech startup Arcadia. However, JPMorgan Chase declined to share a complete list of climate tech investments.

The bank remains the top financier of fossil fuel interests, according to watchdogs including the Rainforest Action Network and the Sierra Club. JPMorgan Chase poured $430.9 billion into oil and gas activities around the world between 2016 and 2023, according to the Banking on Climate Chaos Report.

Smaller banks remain

Smaller, values-driven banks that oppose funding for oil and gas are even ratcheting up their climate ambitions. Among them are Climate First Bancorp, one of only three U.S. banks sticking with the NZBA —among the global total of 141 members — alongside Amalgamated Bank and Areti Bank.

Ken LaRoe founded Climate First of St. Petersburg, Florida, in 2021 to combat climate change. The first community bank insured by the Federal Deposit Insurance Corporation became a Certified B Corporation in 2023.

“Climate change is real and we will continue to work closely with Net Zero Banking Alliance as well as other banks, businesses, communities and individuals to finance a more resilient, renewable future,” LaRoe, now the Climate First CEO, told Trellis. “Simply put, siloed action without accountability – even if real – isn’t enough. This is nothing more than GOP political games that will cost investors, public pensioners, taxpayers – and the world – dearly.”

The fast-growing bank has helped to provide $200 million in solar loans. However, it holds just $850 million in assets, a fraction of one percent of the nearly $1.3 trillion held by Morgan Stanley, the smallest of the giant U.S. banks.

Purpose-driven with net zero aspirations

Beneficial State Bank, which holds $1.8 billion in assets, aspires to join the NZBA. The billionaire philanthropist couple Tom Steyer and Kat Taylor founded the Oakland, California, bank in 2007 to promote sustainability. It seeks to set science-based net zero targets by the end of 2025.

Beneficial also partners with 16 other banks in the Global Alliance for Banking on Values (GABV) to endorse the Fossil Fuel Non-Proliferation Treaty initiative to phase out backing for coal, oil and gas. The progressive GABV counts 70 members in more than 45 countries, totaling $265 billion in assets.

“We’re well aware that the financial sector is one of the biggest contributors to the climate crisis,” Beneficial State Bank’s Chief Impact Officer Terra Neilson told Trellis. “Since the Paris Agreement was signed in 2015, the world’s 60 biggest banks — many of which have net zero pledges — have financed fossil fuel extraction to the tune of $6.9 trillion. But at Beneficial State Bank, we believe this is incredibly shortsighted. Just look at the recent wildfires in Los Angeles; climate chaos comes with an exorbitant cost and poses a tremendous risk to our communities and the financial markets.”

What progress looks like

In recent years, some large banks have thinned their support for Big Oil. Wells Fargo, for one, in 2022 planned to slash emissions from its oil and gas clients by 26 percent by 2030 over 2019 levels.

However, as Republican lawmakers in Washington embrace either Trump’s “drill, baby, drill” cheer or the calmer “all of the above” approach to energy, fossil fuels could look more appealing in the short term.

How seriously will banks pursue net zero now? O’Hanlon of RMI warned against reading too much into any institution’s climate strategy based on its membership in one group. And don’t read their past climate emissions as a prologue for future action, either.

Instead, here’s how to gauge how financial institutions move forward on decarbonization, according to O’Hanlon:

• Look at their investments and the diversity of their products. Does transparency reign? “Are financial institutions enabling an honest societal dialog about where the role is?” he said. Are they continuing to set targets and report on progress, even if they miss their targets? Providing less detail about their engagement with high-emitting sectors is one warning sign.
• Watch for whether companies revise their sustainability targets. Are investments toward a low-carbon transition ramping up or down?
• Also examine any corporate contributions to groups dismissing science or choosing fossil fuels just because it satisfies a particular ideology. Those are better proxies than joining or leaving GFANZ ever was.
• One reason to rest easier about financial institutions meeting net zero commitments is the advent of the Corporate Sustainability Reporting Directive (CSRD) and additional policies in Europe. “The other way I think of it is, you do not need to worry if they exit GFANZ. You need to worry if they exit Europe,” he said.

Nevertheless, anti-ESG lawsuits from Republican-led states and actions by the Trump administration may curb climate intentions.

“Look at the state, federal action, and really look at, can money still freely flow where people choose to, or is it going to be constrained?” he added. For instance, if Washington rolls back or slows down incentives under the Inflation Reduction Act (IRA), banks’ clean tech investments will decrease, he added.

The trillion-dollar question remains whether banks will divest from fossil fuels. “And I will tell you, in every Western society, there is always a backlash when financial institutions cut off capital,” he said. “Societies tend to like banks to be depositors and facilitate financial transactions, and society doesn’t like banks being the proxy for social action.”

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