Members of the Net Zero Banking Alliance (NZBA) are being let down by government inaction on climate change, according to a member of the alliance’s steering group.
Ivan Frishberg, chief sustainability officer at Amalgamated Bank, told Responsible Investor that it was impossible for the financial sector to drive the transition if governments around the world continue to permit the expansion of fossil fuels and not support the real economy through the transition.
Governments have been criticised in recent months for their reluctance to phase out new fossil fuel projects. The Biden administration came under fire in March for approving the Willow Project, a vast ConocoPhillips oil development in Alaska, while Britain approved a new gas project in the North Sea in June last year.
“The ultimate challenge that financial institutions find themselves in is they’ve committed to this thing under the assumption that governments and policymakers are going to be there,” Frishberg said. “And they’re in the process of being left alone at the altar.”
However, he added that the banks themselves are not free from blame.
“They are not completely innocent in that the US banks do not have a track record of real economy policy engagement that aligns with the Paris Climate Agreement,” he said. “Industry opposition to the Inflation Reduction Act due to how it was paid for was pretty clear and could have been disastrous had they gotten their way.”
Banks on the brink
The NZBA has itself come under criticism from more climate-conscious members. Germany’s GLS Bank walked out in protest of member financing for fossil fuel projects in Africa in February, and other banks are also on the verge of leaving.
In a statement published at the end of February, Triodos Bank said it would reconsider its membership of NZBA if there was not a “tangible improvement” on guidelines by COP28 in November. The UK’s Ecology Building Society has taken a similar stance.
All three banks, along with Amalgamated Bank, are members of the Global Alliance for Banking on Values (GABV).
A spokesperson for Vancity, the GABV’s only other member in NZBA, told RI that the bank remained committed to the group and remained engaged in the process.
Vancity, which does not lend to the fossil fuel sector, is “carefully monitoring” efforts to update guidelines, the spokesperson said. They warned, however, that industry alliances are not the key to the transition and that concrete action by governments is crucial.
Many of the sector-specific alliances which make up GFANZ have seen departures, but not in large numbers.
The Net Zero Insurance Alliance saw the departure of Zurich and Munich Re in recent weeks. While both firms have left the insurance alliance, they remained part of the Net Zero Asset Owner Alliance (NZAOA), which has itself seen the departure of Australian pension fund Cbus Super.
The most notable departure from any of the alliances was Vanguard, which left the Net Zero Asset Managers Initiative in December. The asset management giant said in a statement that it had quit in order to make it clear that it “speaks independently on matters of importance to our investors”.
Not fast enough
Larger banks also have concerns about GFANZ. A senior source at one of NZBA’s larger European members said the bank had decided to remain due to the collaborative benefits of being in the group but had been expecting a more prescriptive approach.
European members are realising that they will have to go faster and set their own pace, the source added.
It is not just the green leaders whose membership of NZBA has been in doubt. There were reports in September last year that a number of its largest US members were considering leaving the alliance.
Frishberg said the political context of the US made it difficult for banks to navigate this space without political interference. Indeed, one of the ways for a financial institution to get itself removed from Texas’s divestment list of fossil fuel “boycotters” is to drop out of the NZBA.
“There was a reaction to the Race to Zero process of upping their guidelines,” Frishberg said. “A lot of banks were in the middle of receiving these attacks and also being told from an external party ‘here’s what our expectations are for you.’ They went ‘wait a second, we’ve got to pause here and get this stuff sorted out and we can’t be told by external bodies what we have to do’.”
He added: “The agency of these institutions to decide on their own basis what they participate in, what their commitments are, what targets they set is really important. In that moment it was a natural place to push back and say ‘wait a second’.”
At the same time, Frischberg said that all the big US banks he has spoken with recently are “hard at work”, and are leaning in rather than thinking about dropping out.
Still early days
While he said the GABV banks are “raising incredibly valid questions and concerns”, Frishberg defended the progress the NZBA has made so far.
“Even as recently as two years ago, there were a handful of banks that were operating under any kind of climate targets,” he said. “It was really an anomaly and an exception.
“Now as much as 40 percent of the world’s banking sector is operating under climate targets, and that doesn’t even count China which is operating under its own system. That is a staggering level of progress over a very short time for something as significant and as staid as the banking sector.”
However, Frishberg acknowledged the urgency of the situation. “We’re trying to build the plane as we’re flying it and doing that while trying to aggressively increase our altitude and avoid the mountaintop that’s in front of us. There’s a lot going on, it’s hard and it’s going to take time – but at the same time the need for increased ambition is absolute.”
A major opportunity for stepping up ambition is the revision of the target-setting guidelines, which comes every three years. The first revision, according to the NZBA website, is due to take place by April next year.
The revision process could be made more challenging by the fact that many founding banks may have only set their first targets six months ago, while banks which have set targets may not have started reporting on their emissions.
“It’s hard to fit a lot of honestly thoughtful learning and experience into [the revision process],” Frishberg said. “It is very condensed and ambitious to try to get it done in this year, but that’s our commitment.”