Yet this is not the time to lose hope. It also provides momentum for the climate alliance of willing banks to push for more ambitious climate policies.
After Citigroup, Bank of America, Goldman Sachs and Wells Fargo pulled out earlier, JPMorgan is the latest in an exodus of major US banks from the NZBA. The announcement followed the change in direction of GFANZ, the Glasgow Financial Alliance for Net Zero. No longer is transparency about pulling out of fossil projects a requirement for membership. As long as money is invested in technology that enables the energy transition, financial institutions are welcome. This while the science is crystal clear: only if we stop investing in fossil will we have a chance of limiting global warming to 1.5 degrees.
If anything, even more worrying is that the mass departure stems from a hostile political climate with banks in the US being threatened with lawsuits. Climate coalitions are being sabotaged by accusing them of violating competition law. Moreover, the intention to stop investing in fossil fuels is sensitive as a president takes office whose slogan is ‘drill baby drill’. Meanwhile, the global financial sector is still investing €650 billion a year in the fossil industry.
Two conclusions can be drawn from this. First, that voluntary climate agreements, such as the NZBA, are not currently producing the desired results. Indeed, in financing practice, there is hardly any difference between banks that are members of a climate alliance and those that are not. Secondly, voluntary is all too often non-committal and clearly not enough. With this in mind, there are indeed opportunities to mobilise more private capital for climate action. This is also much needed, because public funding alone will not be enough.
As a start, we need stricter rules for voluntary climate coalitions. The banks that have left the alliance are the same ones that in the past raised obstacles against strict targets needed for a realistic climate approach. That is why the NZBA, for instance, does not require members to have clear targets to phase out the most polluting sectors. Member banks retain the freedom to set their own policy targets, and these are not monitored either. This while the tools for a thorough approach are in place: from sector-specific phase-out paths to reporting obligations and monitoring mechanisms.
Tackling the climate crisis is only possible if everyone joins in. Yet in our view, this does not necessarily mean that everyone has to be a member of the NZBA. In this collaboration, the willing banks ran a great risk of condoning the lack of action and ambition of ‘Wallstreet’ banks. Their departure is distressing because it reduces our scope for action, but it also provides an opportunity for a strong ‘coalition of the willing’ to take the NZBA forward and show what climate action really looks like.
Now that it is clear that voluntary initiatives are not reaching everyone, governments must take their role and oblige laggards to take climate action. The departure of US big banks shows that policymakers shirk their responsibilities if they only lean on the voluntary efforts of private parties. The stakes are too high for that. Private financiers can lead by example and show how the transition is possible, but clear legislation is needed to initiate the transition and bring everyone on board. This includes laws that determine how fossil fuels and their financing should be phased out, for example through a non-proliferation treaty, where countries commit to a clear, predictable and transparent plan for phasing out fossil fuels.
There is broad support for a turnaround. Recent research (Dutch) by Triodos Bank shows that a majority of Dutch people, and thus millions of bank customers, support transitions needed for a sustainable economy. More than ever, it is important to show leadership. Yes, this takes courage. Perhaps we can take inspiration from the firefighters who risk their lives to put out the fires in Los Angeles.
Jacco Minnaar is a member of the Executive Board of Triodos Bank