Key takeaways:
– The net-zero banking alliance began in 2021 to push banks to cut loans linked to big polluters.
– Major U.S. and European banks quit after political attacks and booming oil profits.
– The net-zero banking alliance had soft goals and no clear plan for the short term.
– Banks still funnel massive money into oil and gas, ignoring climate risks.
– The alliance may return as a weak guidance group, not a binding network.
The net-zero banking alliance launched with big hopes. It aimed to steer banks toward a low-carbon future. Yet today it stands suspended. The group once covered over 140 banks with assets of 74 trillion dollars. Now most big names have walked away. This article digs into why it fell apart.
Why the Net-Zero Banking Alliance Collapsed
Founded under the United Nations in 2021, the net-zero banking alliance asked banks to cut loans to carbon-heavy sectors. They set a goal of near zero emissions by 2050. However, they offered no strict deadlines or clear steps. Instead, members only promised to make plans. Over time, those plans proved weak.
Political Backlash
First, political winds shifted. After the 2024 U.S. election, climate action turned into a hot battle. Many state officials accused banks of betraying their duty by using environmental benchmarks. They claimed sustainable investing hurt investors. In August, 23 attorneys general slammed climate disclosure groups as illegal cartels. Under such pressure, banks grew nervous.
Moreover, the new administration blocked clean energy projects. It canceled offshore wind farms nearly ready to run. It froze permits and cut subsidies for renewables. Instead, it opened more land for oil and gas drilling. This change sent a clear message. Fighting climate change lost favor in some powerful circles.
Profit for Fossil Fuels
Second, fossil fuels stayed wildly profitable. After Russia invaded Ukraine, energy prices soared. Oil giants like BP and Shell saw huge gains, even as they tried green projects. These companies then shifted back to drilling. Banks chased those profits too. When European banks cut funding for oil and gas, clients turned to nonbank lenders. Private financing for oil and gas jumped. So banks that kept cutting lost business. They then increased loans, driving funding in 2024 to its highest in three years.
Weak Rules and Costs
Third, the net-zero banking alliance had fuzzy rules. It never set binding targets or penalties. Instead, it added new standards over time. Banks had to require clients to share their full emissions data, even from suppliers. They also needed concrete fossil fuel exit plans. These new demands raised costs. Client firms pushed back hard. They called the alliance’s actions too complex and too slow to help real climate issues.
Furthermore, a booming sustainability industry energized the alliance. Consultants and data firms sold emission tracking, disclosure tools, and green advice. Banks happily bought these services. They added fees and marketed green funds. Yet studies show these funds did not outperform the market. Once political heat arrived, banks saw little real value in these costs.
Long-Term Risks Ignored
Finally, banks kept lending for long periods. Oil and gas loans can last 10 to 25 years. That exposes banks to stranded asset risks when the world finally shifts. One study says investors risk over a trillion dollars in losses from stranded assets. Yet banks often ignore those risks. Why? Because their risk teams sit in separate silos from loan makers. They lack shared data and strong tools. Plus, banks often package loans into larger debt markets. This hides the true climate risk from underwriters.
What’s Next for the Net-Zero Banking Alliance
Despite the suspension, the net-zero banking alliance may not vanish entirely. Its leaders now consider rebranding as a “framework initiative.” That would offer voluntary guidance instead of commitments. Some banks leaving the alliance say they will keep their climate goals. Yet without peer pressure, these promises may weaken.
Meanwhile, the physical risks of climate change keep growing. Floods, droughts, and wildfires threaten company profits and global GDP. A study suggests these events could cut corporate earnings by up to a quarter by 2050. Delaying action forces more severe shocks later. New low-carbon technologies and policies could still create big opportunities. However, banks need clear rules and shared tools to manage both risks and chances.
Lessons Learned
The rise and fall of the net-zero banking alliance offers key lessons:
- Incentives matter. Banks chase profits. When oil pays more than green energy, they follow the money.
- Strong rules help. Voluntary pledges often fail without clear targets and penalties.
Political shifts can make or break alliances. A change of power can undo years of work in months. - Coordination is crucial. Banks must align risk teams with loan originators to see true climate costs.
- Transition costs are real. Deep decarbonization needs big investments and new tech, which come with risks.
For banks to play a real role in fighting climate change, they need clear mandates, shared data, and real enforcement. Otherwise, the lure of fossil fuel profits will keep us locked into risky, high-carbon investments.
FAQs
What was the net-zero banking alliance’s main goal?
It aimed to guide banks to shrink greenhouse gas emissions in their loan portfolios to near zero by 2050.
Why did big banks quit the alliance?
They faced intense political attacks and saw booming profits from oil and gas financing. They also found the alliance’s rules vague and costly.
Could the alliance restart in a new form?
Yes, leaders are considering a looser framework initiative that would offer nonbinding guidance instead of strict commitments.
How can banks manage long-term climate risks better?
Banks should break down data silos, adopt stronger risk tools, set clear targets, and link them to lending decisions.