Why did a series of large US banks leave the Net Zero alliance before Trump 2.0?

Recently, Morgan Stanley announced its withdrawal from the Net Zero Banking Alliance (NZBA), just a few weeks before President-elect Donald Trump’s administration officially took over. This is the fifth US bank to leave this alliance in recent weeks, after Goldman Sachs, Wells Fargo, Bank of America and Citigroup.

The Net Zero Banking Alliance (NZBA), established in 2021 by the United Nations, is a group of leading global banks, committed to regulating lending, investment and capital markets activities according to target of net zero greenhouse gas emissions by 2050.

The wave of withdrawal from this alliance began just a month after Mr. Trump won the election. When Goldman Sachs – the first bank left, the total assets of this alliance were 73,000 billion USD. After the consecutive departure of large banks, the total assets of the alliance members are still 64,000 billion USD.

To date, this alliance has 142 banks, with four banks from the US including Amalgamated, Areti, Climate First and JPMorgan Chase. In particular, Wall Street believes that the last major US bank in the NZBA, JPMorgan Chase, may soon withdraw. In fact, the bank left another climate coalition, Climate Action 100+, early last year.

The wave of banks’ withdrawal raises concerns about climate commitments under political pressure, especially in the US, in the face of legal challenges from Republican lawmakers. The House Judiciary Committee, led by politician Jim Jordan, calls the above alliances a “climate cartel”, where environmental and financial groups collude to promote the decarbonization process. chemistry.

According to senior policy analyst Bonner Russell Cohen, the financial strength of the NZBA, with its commitment to only invest in projects consistent with its net zero emissions agenda, has left many industries fearful of being included in the list. blacklist of major banks, including the US agricultural industry.

“Achieving net-zero greenhouse gas emissions in agriculture requires comprehensive reform of farm infrastructure – one of NZBA’s goals,” agriculture officials from 12 states wrote to governments. American member of the NZBA alliance in early 2024 and called this a “catastrophic impact”.

They argue that the net zero roadmap is impractical and expensive for US farming and livestock operations, for example switching to using electric machinery and equipment, installing solar panels and wind turbines on site, Switching to organic fertilizers, changing irrigation systems on fields, and halving meat consumption, could affect millions of jobs in the livestock industry.

Another alleged pillar of the “climate cartel” is that ESG (environmental, social and governance) investing is being turned away by investors themselves. ESG funds have seen Americans withdraw money for eight consecutive quarters. In the third quarter of 2024, investors withdrew a net of 2.3 billion USD while other market funds continued to grow, Mr. Bonner wrote on the energy and policy website Real Clear Energy.

In addition, Republican-led states accuse financial institutions of prioritizing climate goals over economic benefits. In November last year, Texas and 10 other states sued major asset management companies such as BlackRock, Vanguard and State Street, for violating antitrust laws. They accuse climate action of limiting credit to fossil fuels, reducing coal production and increasing energy prices.

Banks leaving climate coalition maintain commitment to sustainable development. Morgan Stanley and Citigroup aim for Net Zero financing before 2050. Bank of America achieved carbon neutrality in operations in 2019, and has a strategy to mobilize $1,000 billion by 2030 to accelerate the transition to a sustainable economy. Sustainable, low carbon.

Analysts believe that the continuous departure of large banks from NZBA signals greater instability in sustainable financial development as they face conflicts from stakeholders. Investors demand accountability on climate goals. The lawmaker argued that these targeted activities disadvantage traditional industries including fossil fuels.

Scaling back collective initiatives like the NZBA could slow progress in mobilizing the trillions of dollars in capital needed for the transition to a low-carbon economy. Without a unified framework, banks may pursue fragmented approaches, reducing the overall effectiveness of global climate action.

The US withdrew from the Paris Climate Agreement in 2017 during President Trump’s first term and rejoined the agreement in 2021 under President Biden. During the 2024 presidential campaign, a spokesperson said that Mr. Trump plans to withdraw the United States from the Paris Agreement again after taking office.

“There needs to be a delicate interaction between climate ambition and political reality,” commented Carbon Credits. By proactively addressing the challenge, the financial sector will continue to play a key role in the global transition towards a sustainable future.