Net-Zero Banking Alliance is shaken as European giants also leave

After several major US banks left the Net-Zero Banking Alliance (NZBA), two European banks are now leaving as well. The latest to quit the alliance is British bank Barclays. The move comes just weeks after HSBC, Europe’s largest bank, left the initiative.

The Financial Times reported the news, having already reported in July that Barclays was considering such a move. The paper also reported that the bank increased its exposure to fossil fuel projects last year to such an extent that it became Europe’s largest financier of fossil fuel projects.

NZBA is an initiative that encourages banks to engage with climate issues, with the aim of meeting the criteria set out in the Paris Agreement—in other words, achieving net zero by 2050. The alliance was founded by banks in 2021 with strong support from Mark Carney, then governor of the Bank of England and now prime minister of Canada. It provided banks with a framework for developing and implementing net-zero strategies, including setting targets and monitoring progress towards them.

Since December last year, however, the alliance has lost a significant amount of capital, which has declined alongside its membership. In December, its members held $74 trillion; today, the figure is around $44 trillion. The exodus of US giants has therefore had a major impact on the alliance.

Banks continue to leave despite the alliance having lowered its own targets. In April, members voted to align their portfolios with a 2°C warming pathway, compared with the original 1.5°C target set out in the Paris Agreement. The group no longer even requires members to achieve net zero by 2050.

Although no Czech banks are direct members, the list includes parent companies of some players in the Czech market—for example, France’s Société Générale, the majority owner of Komerční banka. Czech MEP Zdechovský also spoke out in April in favor of European banks leaving the NZBA, linking the alliance to some banks’ concerns about financing the defence industry.

Some banks, however, remain in the initiative and have publicly affirmed their commitment to continued cooperation and their willingness to meet the targets. It is also worth noting that, although some major players have left the alliance, more members have joined it than have departed since its launch.

Why is this happening?

There is a consensus among bankers that climate change poses a risk in the future. It is also true that, according to Morgan Stanley, many companies see climate change as important. At the same time, however, other factors that favour the fossil fuel industry must also be taken into account—and politics is not the only one.

Amid uncertainty, oil and gas prices are rising and, more importantly, long-term demand for them is also increasing. In the current social climate, banks are also less concerned about the reputational risk that may once have been associated with investing in the fossil fuel industry.

From their perspective, a commitment not to invest in fossil fuel companies therefore represents a potential loss, particularly since renewable energy sources almost always yield lower returns.

A more cynical, but all the more realistic, perspective is offered by Todd Cort, who warned at the start of the year: “The risk (from climate change) is spread across the entire economy. It is not just one bank that is exposed to it … which means everyone will pay for it. … Since these greater impacts will occur further in the future, money in hand today is worth more than money tomorrow.”