In the last few days, five Canadian banks – TD Bank, Bank of Montreal, National Bank of Canada, Canadian Imperial Bank of Commerce and Scotiabank – announced their withdrawal from the Net-Zero Banking Alliance (NZBA), the industry-led and UN-convened initiative that brings together banks committed to align with net-zero greenhouse gas emissions by 2050. (Canada's largest bank, Royal Bank of Canada, remains part of the initiative, at least for now.) With the recent exit of six major US banks – Goldman Sachs, Wells Fargo, Citigroup, Bank of America, JPMorgan Chase and Morgan Stanley – this means 11 banks have left the NZBA since December 2024. At the same time, the Glasgow Financial Alliance for Net-Zero (GFANZ), a group of financial institutions working to mobilise climate finance, has shifted its focus away from net-zero commitments. While the risk of further ESG backlash under the second Trump presidency might be the main driver of this turbulence in climate finance, these banks had already been long delaying concrete climate action.

All 11 banks’ climate policies were already deeply insufficient to align their lending, investment and capital markets activities with net-zero GHG emissions by 2050, in line with their NZBA commitment. Although Bank of America, Citi and Morgan Stanley were founding signatories of the NZBA, and the others had been members since 2021, these banks are all still financing companies developing new oil, gas or coal projects, all of which are incompatible with a 1.5ºC climate scenario. Globally, 10 of these banks feature among the top 21 fossil fuel financiers since the Paris Agreement. Now outside the NZBA, these banks will have to take full responsibility for their poor climate ambition.

Two months before its NZBA exit, Morgan Stanley had already announced that it would use 1.5ºC-1.7ºC climate scenarios to set its decarbonisation targets, effectively abandoning NZBA’s primary stated goal of 1.5ºC. Several organisations – including BankTrack – expressed deep concern in a letter to the NZBA Steering Group and GFANZ advisory panel.

For now, the 11 banks that left the NZBA remain members of GFANZ, formerly the umbrella organisation for the NZBA and other net-zero sectoral alliances. But GFANZ also made significant backward steps earlier this month, and now is a “stand-alone” private-sector group. This means its members will not need to belong to sector alliances like NZBA, so effectively GFANZ members no longer need to commit to net zero. Instead, the organisation will shift its focus towards “addressing barriers to mobilizing capital” to finance energy transition. While this is critical, without a credible net-zero pathway and a policy commitment not to support fossil fuel expansion, this looks like nothing more than a PR exercise.

A moment of truth (and hope?) for the NZBA

For an alliance that has been stalled by the lack of ambition of the US banks, as well as the wider ESG backlash, there are now fewer reasons for the NZBA to tolerate weakening of its members’ net-zero objectives. The North American banks’ exit is a unique opportunity for the NZBA to demonstrate real climate finance leadership. After all, wasn’t that the whole purpose of starting the UN-convened, industry-led alliance?

Despite the lack of significant progress since its launch four years ago, the NZBA will not start from scratch. After the publication of the second version of the NZBA guidelines last year, some progressive members such as Triodos Bank, Amalgamated Bank and Ecology Building Society called for more ambition. For instance, they stressed the need to end new fossil fuel exploration and expansion and to phase out fossil fuel production. This is the right way forward for the NZBA. The presence in this group of progressive banks like these and La Banque Postale, which set a best-in-class fossil fuel exclusion policy in 2021, should be leveraged for a race to the top that proves net-zero banking is not an impossible mirage, but a necessity for any bank taking climate risks seriously.

The NZBA Steering committee has now a unique opportunity to double down on its 1.5 degree commitment and align its guidelines with climate science-once and for all, for instance by explicitly excluding finance for fossil fuel expansion.

The NZBA reaction to this exodus and uncertainty around some European banks will be closely monitored, but so will the banks that left the NZBA. If the sector is seen to be retreating from action on climate change at this time when urgent action is so sorely needed, the case for regulators, shareholders and others to compel banks to put in place credible net-zero plans will become a great deal stronger.