“It is right here and now that the financial world is drawing the line,” announced Mark Carney, the UN special envoy for climate protection, on stage at the UN Climate Change Conference in Glasgow in 2021.
More than 160 financial institutions have joined a climate finance supergroup, the Glasgow Financial Alliance for Net Zero (GFANZ). At the time, Carney – now an expected contender for Liberal leader – called it a turning point for the energy transition.
For some of these banks, however, that moment appears to be over.
Parts of the United Nations-backed initiative, originally aimed at coordinating banks on net-zero targets and sharing investment practices, are seeing significant exits. An offshoot, the Net-Zero Banking Alliance (NZBA), caused all major U.S. banks to fold last month. The most recent company, JPMorgan Chase, did not give a reason for doing so, but said it “remains focused on pragmatic solutions to advance low-carbon technologies while improving energy security.”
Although the NZBA subunit has grown to more than 140 banks – holding trillions of dollars in assets that experts say will be needed to transition away from polluting fossil fuels – there are now fears that these departures will lead to greater exodus, too at major Canadian financial institutions.
Anti-ESG backlash
Although none of the exiting banks gave a reason for leaving, climate finance experts pointed out the elephant in the room.
“All U.S. banks are afraid of Trump 2.0,” said Paddy McCully, a California-based environmentalist and senior analyst at French nonprofit Reclaim Finance. “Their fear of being attacked by Trump is much greater than their climate commitment, which is why they all abandoned the NZBA.”
In recent years there has been a backlash against ESG investing – which follows environmental, social and governance principles – and US President-elect Donald Trump has been actively campaigning against it.
There was also a lawsuit and investigations led by Republican lawmakers into giant investment firms like BlackRock. They claim these climate initiatives are anti-competitive because they pressure the coal companies in the companies’ portfolios to reduce production to meet climate goals. These legal actions were enough for BlackRock announce his departure from another GFANZ offshootthe Net Zero Asset Managers Initiative.
Critics say this is not due to the public’s desire to invest their money outside of these causes.
“It’s not a real citizens’ political movement,” said Adam Scott, executive director of Shift Action, a Canadian advocacy group focused on climate risks for pension funds.
“It is a cynical attempt by the fossil fuel industry, in collusion with state governments, to try to slow this inevitable transition.”
Will Canadian banks follow suit?
The same pressure, says Scott, doesn’t exist for Canada’s banks. And for now, all major Canadian banks are still part of the alliance.
CBC News reached out to RBC, CIBC, Scotiabank, TD and BMO, who retracted a joint statement from the Canadian Bankers Association, the lobbying group that represents them.
While the sector said it was “aware of the important role it can play in facilitating an orderly transition to a lower-carbon economy”, it was non-committal about future participation in the alliance, saying it was something what each bank decides independently.
However, Bloomberg reported An industry conference this week said some Canadian banks have left the door open to possible exits, with RBC’s CEO saying: “An exit from the NZBA hypothetically does not result in a non-commitment to net zero or climate change.”
Cold reality
The point of voluntary initiatives like the NZBA is to coordinate and share best practices to harness the full purchasing power of banks and focus it on getting the global economy to net zero emissions by 2050.
But in the years since joining such initiatives, some experts have become aware of the complexity of the task.
“Progress was marred,” says Diane-Laure Arjaliès of Western University’s Ivey Business School, “because there were new forms of climate exposure… new carbon emissions that weren’t really anticipated. So it’s extremely difficult for them to commit to net zero at the moment.”
Critics also argue that many of these banks have made no progress in the years since 2021. The latest report, “Banking on Climate Chaos,” released by a coalition of environmental groups, called JPMorgan Chase the “worst financier of fossil fuels” and pledged that fossil fuel projects would increase in dollars “from $17.1 billion.” dollars in 2022 to $19.3 billion in 2023.”
“It’s not necessarily a bad thing that a lot of these players who were never really serious about net zero are walking away,” Scott said, adding that it leaves behind a smaller, more committed group of leaders.
At some point net zero
Scott, McCully and Arjaliès all agree that the European institutions that are still members of the alliance will continue to carry the net zero torch forward.
“The political pressure in Europe is more on banks to go further and be more ambitious than in North America, where the pressure is more in the opposite direction,” McCully said.
There is also less pressure, since there are not as many domestic fossil fuel industries, and more environmental regulations to hold these institutions accountable.
But regardless of their membership in a voluntary group, experts say banks must grapple with the financial impact of climate change.
“It’s a very rational economic decision,” Arjaliès told CBC News from London, Ontario. “We really need to change something now. Every day we wait is a loss of opportunity and will become even more costly in the future.”
