“Right here, right now, is where finance draws the line,” proclaimed Mark Carney, the UN special envoy for climate action, in 2021, on stage at the UN Climate Change Conference in Glasgow.
More than 160 financial institutions signed onto a kind of climate finance super-group known as the Glasgow Financial Alliance for Net Zero (GFANZ). At the time, Carney — who’s now an expected contender for Liberal leader — called it a watershed moment for the energy transition.
But for some of those banks, it appears the moment has passed.
Parts of the UN-sponsored initiative — originally designed to get banks aligned on and sharing investment practices for net-zero goals — are seeing notable dropouts. One offshoot, the Net-Zero Banking Alliance (NZBA), has seen every major U.S. bank quit in the span of the last month. The latest, JPMorgan Chase, offered no reason but said it “remain[s] focused on pragmatic solutions to help further low-carbon technologies while advancing energy security.”
Despite the NZBA subunit growing to more than 140 banks — holding trillions of dollars in assets that experts say will be needed to transition away from environmentally damaging fossil fuels — there are now fears these departures will spur a larger exodus, including from Canada’s major financial institutions.
Anti-ESG backlash
Though none of the departing banks offered a reason for leaving, climate finance experts pointed to the elephant in the room.
“All the U.S. banks are running scared of Trump 2.0,” says Paddy McCully, a California-based environmentalist and senior analyst at the French non-profit Reclaim Finance. “Their fear over being attacked by Trump is much greater than their climate commitment, so they all ditched the NZBA.”
Recent years have seen a backlash against ESG investing — which follows environmental, social and governance principles — with U.S president-elect Donald Trump actively campaigning against it.
There has also been a lawsuit and probes led by Republican lawmakers against giant investment firms like BlackRock. They allege these climate initiatives are anti-competitive, by pressuring the coal companies in the firms’ portfolios to reduce their output in order to meet climate goals. That legal action was enough for BlackRock to announce its departure from another GFANZ offshoot, the Net Zero Asset Managers Initiative.
Critics say this hasn’t been spurred by the public’s desire to see their money invested away from these causes.
“It’s not a real political movement of citizens,” says Adam Scott, executive director of Shift Action, a Canadian advocacy group focused on climate risks to pension funds.
“It’s a cynical attempt by the fossil fuel industry, in collusion with state governments, to try to slow down this inevitable transition that’s happening.”
Will Canadian banks follow?
The same pressure, Scott says, doesn’t exist for Canada’s banks. And for now, all of Canada’s major banks are still part of the alliance.
CBC News reached out to RBC, CIBC, Scotiabank, TD and BMO, who deferred to a joint statement from the Canadian Bankers Association, the lobby group that represents them.
While stating that the sector “understands the important role that it can play in facilitating an orderly transition to a lower-carbon economy,” it was non-committal on future alliance participation, saying that’s something each bank independently decides on.
However, Bloomberg reported from an industry conference this week that some Canadian banks left the door open to potential exits, with RBC’s CEO saying “pulling out of NZBA, hypothetically, doesn’t lead to a non-commitment to net zero or climate change.”
Cold reality
The point of voluntary initiatives like the NZBA is to co-ordinate and share best practices to harness all that buying power from banks, focusing it on getting the world’s economics to net-zero emissions by 2050.
But in the years since joining such initiatives, some experts say the complexity of the task has sunk in.
“Progress has been tinted,” says Diane-Laure Arjaliès, at Western University’s Ivey Business School, “because there were new forms of climate exposure … new carbon emissions that were not really anticipated. So for them, right now, it’s extremely difficult to commit to net zero.”
Critics also argue many of these banks haven’t made any progress in the years since 2021. The latest Banking on Climate Chaos report, released by a coalition of environmental groups, called JPMorgan Chase the “worst financier of fossil fuels,” with commitments to fossil fuel projects increasing “from $17.1 billion in 2022 to $19.3 [billion] in 2023” in U.S. dollars.
“It’s not necessarily a bad thing that a lot of these actors who were never really serious about net zero are leaving,” said Scott, adding that it leaves a smaller, more committed group of leaders.
Net zero eventually
Scott, McCully and Arjaliès all agree that European institutions, still members of the alliance, will carry the net-zero torch forward.
“The political pressure in Europe is more on banks to go further and be more ambitious, rather than in North America, where it’s more in the opposite direction,” McCully said.
There is also less pressure, as there aren’t as many domestic fossil fuel industries, and more environmental regulation to keep these institutions accountable.
But regardless of their membership in a voluntary group, experts say banks will need to address the financial impacts of climate change.
“It’s a very rational economic decision,” Arjaliès told CBC News from London, Ont. “We really need to shift now. Each day we wait is a loss of opportunity and it’s going to be more costly in the future.”
