“Right here and now, finance is the most important thing,” Mark Carney, the UN Special Envoy for Climate Action in 2021, announced on stage at the UN Climate Change Conference in Glasgow.
More than 160 financial institutions have joined a sort of climate finance supergroup known as the Glasgow Financial Alliance for Net Zero (GFANZ). Meanwhile, Carney – who is currently the expected candidate for Liberal leader — he called it a breakthrough moment for the energy transformation.
However, it seems that this moment has already passed for some of these banks.
Some parts of the UN-sponsored initiative – originally designed to get banks to align and share investment practices to achieve net zero goals – are reporting noticeable shortcomings. One offshoot, the Net-Zero Banking Alliance (NZBA), has seen every major U.S. bank leave in the last month. The latest addition, JPMorgan Chase, did not give a reason but said it “continues to focus on pragmatic solutions that will help further the development of low-carbon technologies while enhancing energy security.”
Even though the NZBA subunit has grown to more than 140 banks and holds trillions of dollars in assets that experts say will be needed to transition away from environmentally harmful fossil fuels, there are now concerns that these departures will trigger a larger exodus, including from major Canadian financial institutions .
Opposition to ESG
While neither of the departing banks gave a reason for their departure, climate finance experts pointed out the elephant in the room.
“All U.S. banks are afraid of Trump 2.0,” says Paddy McCully, a California-based environmentalist and senior analyst at the French nonprofit Reclaim Finance. “Their fear of a Trump attack is much greater than their climate commitment, so they all abandoned the NZBA.”
There has been a backlash against ESG investing – which aligns with environmental, social and governance principles – in recent years with US President-elect Donald Trump actively fights against it.
It was too lawsuit and investigations by Republican lawmakers into giant investment firms like BlackRock. They argue that these climate initiatives are anti-competitive, pressuring coal companies in the companies' portfolios to reduce their production to meet climate goals. This legal action was enough for BlackRock announces his departure from another branch of GFANZNet Zero Asset Managers Initiative.
Critics say this was not due to the public's desire to have its money invested away from these goals.
“This is not a real citizen political movement,” says Adam Scott, executive director of Shift Action, a Canadian advocacy group focusing on climate risks to pension funds.
“This is a cynical attempt by the fossil fuel industry, in cahoots with state governments, to try to slow down this inevitable transformation that is taking place.”
Will Canadian banks follow suit?
Scott says the same pressure doesn't exist for Canadian banks. For now, all of Canada's major banks are still part of the alliance.
CBC News contacted RBC, CIBC, Scotiabank, TD and BMO, which postponed the joint statement from the Canadian Bankers Association, the lobbying group representing them.
Stating that the sector “understands the important role it can play in facilitating an orderly transition to a low-carbon economy”, it did not commit to future participation in the alliance, saying it was something each bank would decide independently.
However, Bloomberg reported from an industry conference this week that some Canadian banks have left the door open to potential exits, with RBC's CEO stating that “withdrawing from the NZBA does not hypothetically lead to a lack of commitment to net zero or climate change.”
Cold reality
Voluntary initiatives such as NZBA aim to coordinate and share best practice to leverage the full purchasing power of banks, focusing it on driving the global economy to net zero emissions by 2050.
However, some experts say that years after joining such initiatives, the complexity of the task has been recognized.
“Progress has been stalled,” says Diane-Laure Arjaliès of Western University's Ivey Business School, “because there have been new forms of climate exposure… new carbon dioxide emissions that weren't really anticipated. So it is currently extremely difficult for them to commit to net zero.”
Critics also claim that many of these banks have made no progress in the years since 2021. The latest Banking on climate chaos reportreleased by a coalition of environmental groups calling JPMorgan Chase the “worst financier of fossil fuels” in which commitments to fossil fuel projects increased “from $17.1 billion in 2022 to $19.3 (billion) in 2023 ” in US dollars.
“It's not necessarily a bad thing that a lot of actors who were never really committed to net zero are leaving,” Scott said, adding that he's leaving behind a smaller, more committed group of leaders.
Ultimately net zero
Scott, McCully and Arjaliès agree that European institutions, while still members of the alliance, will continue to carry the net zero torch.
“The political pressure in Europe is more on banks to go further and be more ambitious than in North America, where the opposite is more the case,” McCully said.
There is also less pressure because there are not as many domestic fossil fuel industries, and more environmental regulations to keep these institutions accountable.
But regardless of membership in the voluntary group, experts say banks will have to face the financial impacts of climate change.
“It's a very rational economic decision,” Arjaliès told CBC News from London, Ontario. “We really need to make a change now. Every day you wait is a lost opportunity, and it will be more costly in the future.”