- Major US and Canadian banks have withdrawn from the Net-Zero Banking Alliance following pressure from Republican-led states and the election of President Trump.
- BlackRock, the world’s largest asset manager, has also left the Net Zero Asset Managers initiative due to legal concerns and confusion surrounding its practices.
- European banks are reevaluating their participation in net-zero alliances, and the future of climate finance initiatives is uncertain.
A few years ago, the world’s biggest banks and asset managers raced to commit to funding the energy transition and drop fossil fuel projects from portfolios as they came under shareholder and market pressure to join net-zero alliances.
But after years of scrutiny and blacklisting from Republican states in the U.S. and lawsuits from Republican attorney generals, North American banks and asset managers began quitting net-zero alliances en masse following President Donald Trump’s election victory.
Net Zero Exodus
The top U.S. banks and four of Canada’s largest banks are no longer part of the Net-Zero Banking Alliance (NZBA), a group of leading global banks committed to aligning their lending, investment, and capital markets activities with net-zero greenhouse gas emissions by 2050.
Now several European banks are considering withdrawing from the NZBA, too, while the leading figures of the Glasgow Financial Alliance for Net Zero (GFANZ) – the umbrella group for the finance institutions that have pledged net zero goals – are struggling to hold their regular annual meeting this month, the Financial Times reports, citing sources with knowledge of the situation.
Some of Europe’s biggest banks are rethinking their membership and involvement in net-zero initiatives as Donald Trump returns to office and Republican-led U.S. states are going after “woke capital.” This, they say, discriminates against America’s oil, gas, and coal industry by committing to net-zero portfolios and adopting principles that could reduce financing for fossil fuel projects.
Since early December, the biggest U.S. banks – Goldman Sachs, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, and JP Morgan – have all quit the NZBA.
Commenting on the banks’ withdrawals, Texas Attorney General Ken Paxton said,
“More and more financial institutions are taking a major step in the right direction by leaving the radical and anti-energy Net-Zero Banking Alliance.
“The NZBA seeks to undermine our vital oil and gas industries, and membership could potentially prevent banks from being able to enter into contracts with Texas governmental entities,” Paxton added.
BlackRock, the world’s largest asset manager, early this month quit the parallel Net Zero Asset Managers initiative in the latest exit of a major financial institution from a climate finance alliance since Trump was elected U.S. President.
BlackRock has decided to leave the voluntary Net Zero Asset Managers initiative, which launched in December 2020 and aims to “support the asset management industry to commit to a goal of net zero emissions in order to mitigate financial risk and to maximize long-term value of assets.”
The world’s top asset manager has quit the initiative because its membership has “caused confusion regarding BlackRock’s practices and subjected us to legal inquiries from various public officials,” Vice Chairman Philipp Hildebrand wrote in a letter to institutional clients.
Net Zero Under Scrutiny
BlackRock and major banks have come under increased pressure from Republican politicians and Republican-governed states over their pledges to scale back funding for fossil fuel projects.
Texas authorities, for example, have decided to withdraw $8.5 billion in assets of the Permanent School Fund from the asset manager. The Texas legislature passed a law in 2021 to penalize financial firms that, according to state authorities, discriminate against energy companies.
At the end of November, a group of Republican states led by Texas sued BlackRock and fellow asset managers Vanguard and State Street for alleged violation of antitrust laws. The states allege that the asset managers have been pressuring coal firms to lower output to cut emissions, thus driving up electricity prices in America.
Since leaving the net-zero asset managers’ alliance, BlackRock has reached a settlement with the state of Tennessee, which had sued the world’s biggest asset manager for misleading consumers regarding the role of Environmental, Social, and Governance (ESG) factors in its investment practices. The settlement concluded a lawsuit filed by the State of Tennessee under the Tennessee Consumer Protection Act (TCPA).
“The Americans are totally obsessed about not being sued by Texas. The banks have been the worst,” a European executive involved in the Glasgow initiative told FT.
Canadian banks BMO, National Bank, TD Bank Group, and CIBC also quit the net-zero banking alliance last week.
European lenders have threatened to follow suit unless NZBA eases rules and ends “all formal tracking and any issues that are perceived contrary to US antitrust”, according to FT’s sources.
The asset managers’ net zero alliance is already struggling under the pressure. A week ahead of President Trump’s inauguration, the Net Zero Asset Managers said it was launching a review of the initiative.
“Recent developments in the U.S. and different regulatory and client expectations in investors’ respective jurisdictions have led to NZAM launching a review of the initiative to ensure NZAM remains fit for purpose in the new global context,” the alliance said.
While the review is ongoing, the initiative is suspending activities to track signatory implementation and reporting.
European banks want the net-zero banking alliance to undergo a similar overhaul. Otherwise, they have threatened to quit and follow in the footsteps of the biggest U.S. and Canadian banks.
“Several banks have said that unless the banking alliance goes the same way [as] the asset management initiative, they will begin the process to leave,” a source familiar with the banks’ thinking told FT.
By Tsvetana Paraskova for Oilprice.com
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