After Wall Street Exodus, Climate Group Explores Axing 1.5C Goal

(Bloomberg) -- The largest climate-finance group for banks is exploring a list of fundamental adjustments to how it operates, as it seeks to right itself after a wave of high-profile exits.

The Net-Zero Banking Alliance is considering an overhaul of its membership terms that may include abandoning a requirement for signatories to align their portfolios with a goal of limiting global warming to 1.5C, according to a person familiar with the group’s thinking who asked not to be identified discussing private deliberations. 

If enacted, such changes would amount to a clear departure from the founding tenets of the alliance. Deliberations are ongoing and it’s not clear what the final result will be.

A spokesperson for NZBA said the alliance is currently undertaking a “strategic review,” adding that the group was designed to allow for adaptation to “changing conditions.”

The development follows a tumultuous few months for NZBA. The alliance was founded just four years ago and once claimed to represent over 40% of global banking assets. Now, with Wall Street responding to the Trump administration’s attacks on climate policies, net zero alliances are fighting for survival.

Goldman Sachs Group Inc. was the first Wall Street bank to turn its back on NZBA, announcing its decision a month after Donald Trump won the Nov. 5 presidential election. By Jan. 7, when JPMorgan Chase & Co. quit, not a single big US bank was left in the alliance. Canadian banks were quick to follow, virtually wiping NZBA off the North American map.

NZBA responded to the defections by telling members it’s exploring a “next phase” and will “investigate how it can continue to deliver value and better support member banks to individually and independently implement their climate strategies.” 

Members of NZBA’s steering group, which governs the alliance, met on Jan. 23 to discuss how to move past the shock of losing key signatories, and how to prevent further defections, according to a person familiar with the matter.  

Options currently on the table include abandoning a requirement for banks to align their businesses with the 1.5C target of the Paris climate accord, and instead setting a new limit of “well below 2C,” the person said. 

The 2015 Paris agreement set 1.5C as a so-called stretch goal within the overarching ambition to hold the increase in the global average temperature to well below 2C above pre-industrial levels by 2100. At the current pace of decarbonization, the United Nations has warned that neither of those targets will be met. 

NZBA’s website still lists the existing membership commitment, which states that signatories are required to transition all greenhouse gas emissions from their lending and investment portfolios “to align with pathways to net zero” by 2050 at the latest “consistent with a maximum temperature rise of 1.5C above pre-industrial levels by 2100.”

Other changes being contemplated include removing financed emissions as the sole metric for assessing a bank’s climate performance, with additional measures being considered, according to the person familiar with NZBA’s discussions. And the alliance may stop policing how well members align their operations with climate-friendly goals, the person said.

NZBA’s steering group will meet later this month to iron out its plans before submitting a proposal to the alliance’s remaining signatories in March, the person said.

The NZBA spokesperson said its review has been ongoing for almost a year, and all members will be approached within the coming weeks with the aim of concluding the process in the second quarter. No proposals have been finalized, they said.

Banks that have quit the alliance have said they’ll continue to help clients transition their businesses to a lower-carbon future, while also focusing on the issue of energy security. 

In connection with its exit last month, JPMorgan said it plans to focus on “pragmatic solutions to help further low-carbon technologies while advancing energy security.” Citigroup Inc. said it will “continue to work with our clients on their transitions to a low-carbon economy while helping ensure energy security.”

European and Asian lenders, meanwhile, have so far broadly signaled they remain supportive of NZBA, though not all are willing to commit to continued membership. 

On Wednesday, HSBC Holdings Plc said it needs to walk back some of its earlier emissions goals as it responds to the slow pace of decarbonization in the wider economy. On a call with reporters, HSBC Chief Executive Officer Georges Elhedery said the bank is still an NZBA member, but stopped short of stating any future commitment.

NZBA is one of a family of net zero alliances that are currently struggling to keep members. In January, the Net Zero Asset Managers initiative said it was conducting a review to ensure it remains “fit for purpose,” after BlackRock Inc. walked out. In 2023, a net zero group for insurers saw mass defections amid Republican litigation threats. 

The extent to which net zero alliances have a future in the US is now in doubt, as the Trump administration makes clear it views the concept with deep skepticism. Speaking at a recent conference arranged by the Alliance for Responsible Citizenship, Trump’s new energy secretary, Chris Wright, referred to net zero as a “sinister” and “terrible” goal.

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