NZBA collapses as divide widens between green and fossil lenders

The Net-Zero Banking Alliance (NZBA), founded in 2021, confirmed on Friday 3 October that its remaining signatories have agreed to dissolve the coalition as a member-based body. The move followed an August suspension of activities and a wave of high-profile defections.

A spokesperson for NZBA confirmed that the alliance’s guidance will remain publicly available for banks developing their own transition plans.

Several of the world’s biggest American, British, Canadian and Japanese banks — including JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley, National Bank of Canada, HSBC and Barclays — had already left the coalition.

Their departures left NZBA dominated by European lenders, among them ING, ABN Amro, Swedbank, SEB and Danske Bank.

New guidance

Coinciding with the dissolution, NZBA published an updated Guidelines on Climate Target Setting for Banks, updating expectations for lenders.

Within three years, banks are encouraged to report on financed emissions for all or a “significant majority” of Scope 3 emissions for carbon-intensive sectors in their net-zero targets. Banks are also encouraged to publish high-level climate transition plans within 12 months. The guidance recommends rules further restrictions in the use of carbon credits: using only certified removals and only at the point of achieving net zero, closing loopholes that allowed offsets against near-term goals.

NZBA launched to align global banks’ financing with the Paris Agreement, and membership initially surged, tripling from 43 to 144 institutions across 44 countries by 2023.

A widening split

But momentum faltered with political shifts in the US and mounting fears of litigation risk among American lenders. At the same time, questions grew over the effectiveness of voluntary net-zero targets, with little evidence of progress in lending portfolios.

Critics of the alliance therefore argue that its demise will make little difference. Lucie Pinson, director of Reclaim Finance commented:“We won’t mourn the NZBA. Like other financial alliances of its kind, it brought little — if anything — to the climate, and was doomed to fail. Its purpose was never to take real action, but to create the illusion of measures in order to ward off the risk of regulation. At least its demise brings clarity: the institutions genuinely committed to containing global warming will continue to act. But the massive reallocation of financial flows toward solutions cannot happen without intervention from policymakers and regulators. Their action is essential to limit climate change and the systemic risks it entails. For both, the priority remains ending the financing of fossil fuel expansion."

BloombergNEF’s Energy Supply Banking Ratio, which tracks financing of low-carbon versus fossil energy, shows banks have continued to direct more funding into fossil fuels than renewables since 2021. JP Morgan Chase, which left the alliance, has kept a ratio of around 0.7:1 every year from 2021 to 2024. By contrast, BNP Paribas has significantly improved its ratio, now lending twice as much to clean energy as to fossil fuels.

Banks also play a pivotal role in bond markets, which remain a key source of fossil fuel financing. Here, however, there are signs of progress. Research by the Anthropocene Fixed Income Institute suggests that for the first time in years, major banks have earned more fees from green bond issuance than from fossil fuel deals.

The collapse of NZBA highlights the fragility of coordinated climate action, but the stricter new guidance may accelerate divergence. Banks willing to embrace tougher transition standards appear set to move further ahead, while others continue to back fossil fuel expansion.