Stockholm (NordSIP) – The Net-Zero Banking Alliance (NZBA) has come under fire on the topic of climate change since the re-election of Donald Trump to the presidency of the United States. Between December and January, the alliance witnessed an exodus by organisations seeking to not alienate the new administration. JP Morgan, Morgan Stanley, Bank of America, Citigroup, Wells Fargo and Goldman Sachs were some of the most prominent names to leave the organisation. Now, NZBA has decided to soften its goals and guidance in what seems to be an attempt to accommodate the new political environment.
Lower Ambitions
According to Guidance for Climate Target Setting for Banks, Version 3, the latest guidance issued by NZBA, its updated Ambition is that “targets should align with the goals of the Paris Agreement, aiming to limit global warming to well below 2°C, striving for 1.5°C, as established by world governments in 2015, be science-based, and support the global transition towards a net-zero economy.”
The new recommendations appear to suggest that NZBA is moving towards a 2°C target. This represents a step backwards from the previous guidance. Version 2 of the NZBA guidance, published in April 2024, was more ambitious.
“Targets shall at a minimum align with a goal to limit global warming to 1.5°C above the preindustrial average by the end of the century, be science-based and support the transition towards a net-zero economy by 2050,” the NZBA demanded of its members last year. (emphasis added).
Subtle Changes are not Innocuous
The guidance also backtracks on its original ambitions through subtle language changes. The change from “shall […] align” to “should align” in the stated ambitions of each guideline are not innocuous. Version 2 of the Guidance, published in 2024, clearly defines what it means by these two terms and how they are to be distinguished.
“Shall means that a process is mandatory, on a comply-or-explain basis. Should[, on the other hand,]means that a process is optional, but strongly recommended.” Clearly NZBA has become more lax with its requirements.
The seemingly subtle change of terminology does not stop here. Version 3 of the guidance redefines what it means by “science-based” to referring “to approaches (e.g., scenarios, pathways, methodologies) from credible sources.” This is a considerable step down from Version 2, which states that “’science-based’ refers to 1.5°C approaches (e.g., scenarios, pathways, methodologies) from credible sources.” The commission of the 1.5°C is crucial to NZBA’s seeming transition towards a 2°C target.
The Direction of Travel Matters
While this adjustment in the ambitions of the NZBA is regrettable it may in practice have little impact since the NZBA has been plagued by concerns of greenwashing for quite some time.
In October of last year, NordSIP pointed to a report produced by the Transition Pathway Initiative Centre (TPI Centre) according to which too many of the NZBA’s members fell short of what is needed to support the low carbon transition, with poor carbon performance scores. Prior to that, an examination of the net-zero commitments by the world’s largest banks found promising beginnings with significant room for improvement, noting that commitments were vague, that there were problems with the choice and use of underlying scenarios and pathways can be improved and room to improve target-setting.
BankTrack, an international NGO challenging commercial banks to act on the climate crisis, went further in April 2024. “Three years after the bold promise of the first NZBA banks to set their institutions on a firm course to net zero, the initiative so far delivered very little to instil confidence in that promise. Given the lack of impact of sectoral decarbonisation targets adopted by member banks on financed emissions, we urge NZBA member banks to commit to stop financing new fossil fuel projects, and companies developing those projects, as the necessary step to move towards reaching the 1.5 degree goal of the Paris Agreement. After three long years of mostly talk, it is high time to start the walk,”
This adjustment to the NZBA’s guidelines matters most as an indication of its direction of travel. Whilst ambitious guidelines that are ignored suggest a hope that the relevant parties may reform to enforce their stated goals, these changes suggest that the remaining organisations in the NZBA have given up pushing for a more ambitious agenda and are just hoping to stop any further exodus.
