One of the world’s premier climate pacts for financial institutions is the UN-backed Net Zero Banking Alliance (NZBA). Formed in 2021, the NZBA aimed at getting financial institutions to adopt voluntary climate commitments to limit global heating to 1.5 degrees Celsius. NZBA is one of the most stringent climate pacts with over half of its 144 members adopting SBTi targets for 2030. However, the effectiveness of NZBA and other climate finance pacts is being called into question. The European Central Bank (EBC) recently published a paper looking into the effects of voluntary climate commitments, particularly among NZBA members. They found:
“Climate-aligned banks do not change their lending or loan pricing differentially compared to banks without climate commitments, suggesting they are not actively divesting. We can reject that climate-aligned lenders divest from firms in targeted sectors by more than 2.6%. Firm borrowers are no more likely to set climate targets after their lender sets a climate target, which casts doubt on active engagement by lenders. These results call into question the efficacy of voluntary commitments.”
This is to say that the activities of NZBA signatories are not substantially different from non-signatories, throwing shade on the effectiveness of the NZBA and voluntary commitments as a whole. However, there are arguments in favor of climate alliances. As reported in The New York Times, these pacts are relatively new. Many members are still in the planning and target-setting phases of their commitments and have therefore not realized their full potential. Ultimately, it is disappointing to see that NZBA signatories are not outperforming the rest of the market on climate policy, but we should keep in mind that climate policy takes years to fully implement and is a long-term investment. If these trends continue into the future, there will certainly be cause for concern.
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