In recent months, the financial world has been shaken by major banks stepping away from the Net Zero Banking Alliance (NZBA). But what does this shift mean for businesses, investors, and the future of sustainable finance? Should we be concerned, or are there new strategies emerging?
ThisRock is proud to feature a guest post by Bertha Lau, CPA, CA, CFA, and SCR certificate holder. With her deep expertise in accounting, finance, and reporting, Bertha provides a thoughtful perspective on what these banking moves mean for sustainability commitments, corporate climate goals, and the role of financial institutions in the global net-zero transition.
Take the next five minutes to explore the key takeaways from this unfolding story and what it means for businesses like yours!
North American Banks and Net Zero: What’s Next?
In December 2024 and January 2025, it was announced that major North American banks were pulling out of the Net Zero Banking Alliance. But what does this mean? Does it mean that Canadian finance and companies are waving the white flag in the climate change fight? Here’s what we think.
What is the Net Zero Banking Alliance and why are banks pulling out?
The Net Zero Banking Alliance (NZBA) is a group of leading global banks committed to aligning their investments, lending, and capital markets activities with net zero greenhouse gas emissions by 2050. It started in 2021 with 43 founding members and was convened by the United Nations Environment Programme Finance Initiative. The scope of NZBA covers the bank’s lending and investment activities and do not include scope 1, 2, and non-category 15 scope 3 emissions. The focus of the NZBA is on financed emissions, the emissions that are generated from their investments. You can read more about the NZBA here.
All 6 major Canadian banks pulled out in January 2025. (Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, and Toronto Dominion on January 17 and then Scotiabank on January 20 and Royal Bank of Canada on January 31.) This follows the withdrawal of six major US banks (JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, and Goldman Sachs). Banks cited “strategic realignment” and the ability to pursue their net zero goals independently. The withdrawal of the American banks occurred at the same time as the on-boarding of the new US administration, which has expressed skepticism over climate change and has pulled out of the Paris Agreement – again.
Another factor that may come into play is the rise of litigation from both the political left and right in the US, which makes it more expensive for banks when it comes to pursuing climate change strategies. Banks are generally risk-averse, and pulling out may be a way to minimize legal risk. If you don’t like risk, you certainly aren’t going to like running the risk of being sued by both the left and right!
Is it all doom and gloom now?
The NZBA is focused on financed emissions, and with major Canadian and American banks pulling out, there may be a reduction in clarity on how cutting financed emission goals will be achieved. The Canadian banks indicate that while they are no longer a part of the NZBA, they are still committed to their climate strategies and will work with their clients on de-carbonization solutions. The NZBA still has over 130 members, representing $56 trillion USD in assets. This is still a significant portion of the global market that is still committed to reducing financed emissions.
Other companies are standing firm on their own emissions targets and making progress on their climate change goals. According to the Science Based Targets Initiative, over 7200 companies have signed up or are committed to develop science based targets which represents over 40% of the world’s market capitalization. You can learn more about some of these companies in a related This Rock ESG post. You can read more about companies making progress in our related ThisRock ESG article.
Got any more positive news?
Not only are individual companies committed to fighting climate change, but there are also positive trends in the energy market. The International Energy Agency (IEA) states that the deployment of solar technology has tripled from 2018 to 2023 and is expected to account for 80% of the growth in global renewable energy between 2024 and 2030. Solar technology is widely accessible and can be used by the largest corporations down to the individual home owner.
One common complaint with solar power is “what are you supposed to do when it rains?” Well, there’s progress in that aspect too! With all that solar energy being captured by solar technology, we now also have better ways of storing that energy. Battery energy storage systems (BESS) have a rapid growth trajectory, with an expected compound annual growth rate of nearly 25% until 2032, according to Statzon. See Battery Energy Storage Systems (BESS) in the energy transition. That means those worries of unreliable power supply should diminish as BESS offers more flexibility for short term energy storage. When you hear batteries and climate change, the battery in an electric vehicle (EVs) might come to mind, and there has been good news on that front as well. Sales of EVs continue to grow around the world, especially in China, where the IEA states that new EV registration has grown by 35% in 2023 compared to 2022. The registration of new zero emissions vehicles in Canada and the US continue to grow as well. Range anxiety should also decrease, as range for medium size cars and SUVs are now at 380kms, higher than the 150-270kms back in 2015 – see trends in electric cars.
Our Outlook
While it is disappointing that the largest banks in North America have pulled out of the NZBA, it doesn’t mean that progress on climate change goals is over, as companies still continue to make progress on their individual goals, and we as consumers, support these changes. Perhaps this puts the onus back on us, as individual consumers and companies, to make the changes ourselves. Instead of waiting for leadership from large corporations and governments in the ever shifting political winds, we can claim our own choices and put our support behind companies and technologies that share our values. Yes, it would be easier if we are all in the same boat, rowing in the same direction, and cheering loudly for our team, but this doesn’t mean that we aren’t going in the right direction and that we should stop working towards our goals. We can make changes and support others heading in the same direction. We can be the leaders that we seek.
References
Ref 1: https://www.unepfi.org/net-zero-banking/
Ref 2: https://sciencebasedtargets.org/companies-taking-action#how-often-is-the-target-dashboard-updated
Ref 3:
Ref 4: https://www.iea.org/energy-system/renewables/solar-pv#tracking
Ref 6: https://www.iea.org/reports/global-ev-outlook-2024/trends-in-electric-cars
