Unless you went completely off-grid for the month of December, you already know that the UN’s Net-Zero Banking Alliance (NZBA) saw Bank of America, Citigroup, Goldman Sachs, and Wells Fargo withdraw from the organization. Right after the first of the year, Morgan Stanley also withdrew. And now, Alastair Marsh and Saijel Kishan of Bloomberg report
“JPMorgan Chase & Co. just became the last of Wall Street’s biggest banks to abandon the industry’s largest climate-finance alliance.”
The banks all issued statements that they weren’t abandoning their support of net-zero, but intend to work toward the goal in their own ways. There has been speculation these actions were the result of disagreements with commitments necessary as part of NZBA membership, or concerns about regulatory and legal consequences as these are US banks that already face anti-trust threats and anti-ESG state laws.
So what is the potential impact of this?
“… the real-world fallout of the NZBA defections is unclear. According to data compiled by Bloomberg, banks have collectively stepped up their financing of the fossil-fuel industry since the alliance was formed in 2021.”
There were criticisms at the time the organization began that it was just “virtue signaling”. Maybe that is true, or perhaps there were other things going on. In my opinion, the banks didn’t have a thorough understanding of the issue before joining and jumping on the bandwagon was seen as an easy, knee jerk reaction. They appear to have concluded the obligations were too constraining or developing legal risks too high – so, given that those were voluntary, they withdrew from the organization to pursue their own goals following their own paths.
We probably aren’t near the end of defections of this type. Michael Littenberg predicts “U.S. signatories will continue to leave collaborative climate initiatives” in 2025, and “[g]iven U.S. conservatives’ success in damaging support for climate organizations, they will target other prominent pro-ESG initiatives beyond climate.”
Sustainability leaders, staff and advisors – joining an association or collaborative in response to a sustainability/ESG development may be seen as a quick “win” but it also carries risk. The decision should not be made lightly. Carefully evaluate requirements, commitments and constraints associated with membership to ensure the company is fully willing to live up to them. If not, you are probably better off not joining to begin with, rather than joining and withdrawing later.
Members can learn more about sustainability in the financial services sector here.
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Photo credit: Dragoș Asaftei – stock.adobe.com
