Why the end of the NZBA doesn’t mean the end of net zero

The Net Zero Banking Alliance (NZBA) has formally ceased operations as a member-based organisation, following a vote by its remaining members. This marks the end of what we believe is one of the most significant collective efforts to align global banking with the goal of net zero emissions by 2050. Established in 2021 under the UN Environment Programme’s Finance Initiative, the NZBA helped banks develop frameworks and methodologies to decarbonise their lending and investment portfolios. Now, after a wave of high profile exits, the alliance will shift to a guidance based framework rather than a membership model.

When we wrote about the exodus of Wall Street banks from the NZBA back in January, we believed it was largely driven by political pressure in the US. At the time, we were reassured that most banks maintained their net zero targets, with Wells Fargo being a notable exception. All European members remained in the alliance, and we thought the political and regulatory landscape in Europe would help prevent contagion. However, the subsequent departures of HSBC in July, UBS in August, and Barclays soon after showed that the NZBA's credibility had weakened beyond repair.

Only two months after Barclays' departure the alliance’s decision to “cease operations immediately” was made through a member vote, with the outcome to “transition from a member-based alliance to a guidance framework” that will continue to inform banks’ decarbonisation strategies. European banks cited a combination of concerns about the alliance’s dwindling global relevance and their exposure, albeit limited, to the US political climate. One can imagine a greater concentration of costs among the remaining members also played a part.

Our engagements with both US and European banks have revealed a consistent message: the NZBA served its purpose in the early days, when banks were uncertain about how to approach net zero alignment across their lending portfolios. Collaboration was essential then, and the alliance was reportedly never intended to be perpetual, but rather a framework for initial coordination. Since then, all major banks have built robust internal frameworks and policies, and expanded their internal sustainability teams allowing them to operate independently. With the transition away from collective membership, the onus and responsibility to develop and deliver on their own net zero plans now rests squarely with individual banks.

In addition, banks emphasised in our direct engagements that they do not make meaningful strategic changes based on the approach of any single US administration, which may not remain in power beyond its four-year term, as policy can be quickly reversed. This helps explain why the departures were somewhat politically motivated rather than indicative of a broader shift in lending strategy.

Ultimately, these exits appear aimed at removing banks from the political firing line rather than altering their underlying sustainability strategies. Similar trends are emerging across the US corporate sector, with firms becoming less vocal about their climate commitments not because activity has ceased, but to avoid political scrutiny.

It is important to note that the end of the NZBA does not signal the end of banks’ climate ambitions. European banks remain committed to the targets originally set under the alliance, supported by strong political and regulatory backing at home. The NZBA’s methodologies and frameworks will remain publicly available and are likely to continue serving as the reference point for the industry. The NZBA has created a strong foundation from which banks can continue to build, providing the tools and frameworks needed to integrate climate considerations into core banking practices. The challenge of decarbonising lending portfolios, especially for institutions with significant fossil fuel exposure, remains immense, but the direction of travel has not reversed.

While the alliance may no longer exist in name, it is important to remember the role it played in fostering collaboration among banks that were initially unsure how to align their businesses with net zero. Yet the conclusion of the NZBA also marks an inflection point: banks are moving from the planning and framework building phase to the action oriented stage of their journeys, where implementation and tangible progress will define credibility. The responsibility is now individual, not collective, and the credibility of net zero commitments will depend on each bank’s ability to deliver on its own strategy. The NZBA may be gone, but the hard work of banks’ decarbonisation efforts remains largely unchanged.

While there will undoubtedly be criticism of European banks for following their US peers out of the NZBA, we take comfort in the continuity of their commitments. We do not expect any widespread deviation from their current sustainability plans. 

However, as investors, there was a degree of confidence we could take in the collective commitment of NZBA members. Now that this no longer exists, we will need to be more hands-on in monitoring banks’ approaches to fossil fuel financing in particular. From an investor perspective, there was a concern that leaving the alliance could signal a shift in lending, for example to fossil fuels. However, we believe this is unlikely in practice. While these changes represent a setback for the ESG community, we should take encouragement from the broader positive trends: bank lending to fossil fuels has continued to decline, while volumes directed toward sustainable finance are increasing.