Davos 2025 came and went last week and very few bankers or asset managers were talking about commitments to cutting carbon emissions, sustainability goals or, quite frankly, climate change. Despite the efforts of the World Economic Forum’s secretariat to keep “saving the planet” on their agenda, the financial institutions were falling over themselves trying to fund new (fossil fuel) investments for the anticipated boom in AI data centers.
The Net-Zero Banking Alliance (NZBA) has been set up by the UN Environment Programme (UNEP) to bring together global banks to fight climate change by aligning their lending and investment portfolios with the strategy of achieving net-zero emissions by 2050. The objective is to have banking alliance members reduce exposure to the most greenhouse gas (GHG)-intensive sectors within their portfolios by 2030. UNEP’s logic was that by cutting financial access to these high energy sectors (eg, fossil fuel-based industries), investments and emissions would go down.
But this strategy also implied a significant loss of business should these GHG-intensive industries once again gain favor or if people stopped being afraid of the risks from climate change. The return to power of Donald Trump in the United States provided just that situation. In the weeks leading up to Davos, a large number of the world’s biggest banks announced they were leaving the NZBA (see image below).
The six largest US banks left the Net-Zero Banking Alliance within a month and five of the Big Six Canadian banks took three days to decide to leave. Only RBC is remaining (as they sit on the NZBA executive board) although their CEO, David McKay told Bloomberg last week that they were considering their options.
Farewell Sister Initiative
At the same time, the Net Zero Asset Managers Initiative, a sister organization of the NZBA, had the common sense to suspend their operations on January 13, 2025, pending a review. This UN-sponsored organization needed to see if they were still “fit for purpose” just three days after BlackRock chose to abandon the initiative they helped start.
One of the partners involved in setting up the asset manager initiative is the CDP (the Carbon Disclosure Project) which, as the Firebreak series has been covering, has excelled in radically changing itself to adapt to shifting opportunities.
After four short years, I suppose it made no sense to keep setting stricter carbon emission commitment targets when many of the asset managers were rushing head first to fund the new energy infrastructure investments to power the AI data centers (with fossil fuels). See our discussion on how BlackRock’s Larry Fink was going all in on these new AI energy funds.
If it took just three days for the Net Zero Asset Managers Initiative to realize the game was up, how much longer will the Net-Zero Banking Alliance take? UNEP is a much slower moving beast than the UN’s Principles for Responsible Investment (PRI), the supranational group behind the asset managers initiative, so it might be better to give NZBA a couple more weeks until they announce their “suspension, pending a review”.
But why have these big banks been abandoning the Net-Zero Banking Alliance so suddenly and in such large numbers? There are five possible reasons.
1. The Trump Effect?
Many in the media claimed that the US banks had left the alliance out of fears of lawsuits and retaliatory measures following Donald Trump’s US election win. This “excuse” does not then explain why almost all of the large Canadian banks have likewise left. It seems doubtful that the American courts would entertain cases against companies for making voluntary commitments and while Trump may be petty, he knows the value of a bank. There are certainly other more important elements at play here (like a free market).
2. An unclear understanding of “Net Zero”?
The goal of the NZBA was never clear or actionable. What is “net zero” and how could it be turned into a target to be applied to such a wide variety of industries? It is one thing to innovate to cut emissions or implement sustainable practices so as to leave the world in a better place than it was before, but “net zero” (for carbon emissions) implies an impossible target. The concept got even fuzzier when emissions were measured down supply chains to the post-consumption stages.
“Zero” strategies are branding tools activist NGOs frequently use to indicate a refusal to compromise in policy discussions. It has been used in other campaigns like zero waste, zero pesticides or zero plastics. Environmental ideologues dream of some perfect world with zero industry so when the business community adopted this vocabulary, it did not translate well (even with the addition of the “net” qualifier). UNEP was aiming too high and their Davos sycophants in the finance industry did not actually understand how deep that rabbit hole was.
3. You can’t win a game if too many players are leaving the field
The commitment to “fight climate change to save the planet” lost its shine when consumers and businesses started finding the activist climate hysteria had become a bit overdone. The noble claim of fighting the “greatest challenge of our time” was not a vote winner when food and energy prices were skyrocketing, so many of the banks’ clients were no longer playing into their climate commitment and carbon disclosure games.
For the last two years, public reactions to the financial and regulatory institutions’ ESG impositions started to lead to significant reputational damage and lost business from certain governments (particularly in southern US states). Once the Trump administration started opening up more markets to fossil fuels, the business players, tired of being bullied, left these commitments to play their game in another field.
4. Useless administrative hassles for bankers
I recently had to have a meeting at my bank in Brussels to be informed that my portfolio was not ESG compliant within the bank’s larger commitments. As my advisor, she had to read from a prepared script to promote some of their “more sustainable” products while offering me a special “filter” to increase my percentage of environmental and ethical investments. I’m sure my bank manager would have preferred to get that hour of her life back doing something other than having me talk her into circles on subjects like why Rio Tinto is a much more sustainable stock than, say, Chipotle. If she has to do that with every client capable of critical analysis, then I imagine her head office must be getting the message that their clients are getting fed up with this nonsense.
5. Their money wasn’t where their mouth was
As mentioned above on why the Net Zero Asset Managers Initiative is likely folding up, financial institutions have identified a surge in energy infrastructure projects to profit from. Like hedge funds and asset managers, banks follow the money, and the opportunity of creating new energy trading desks to finance these new generations of power plants (using fossil fuels) connected to a wave of AI “factories” being planned was just too great to let some fluffy UN commitments get in the way.
These bankers will easily tolerate the inconvenience of the occasional group of Gen Z activists gluing themselves to their HQ doors in return for the billions in profits they stand to make. How long before the European banks realize they are missing out on the investment of the decade?
When Fear Becomes Banal
The bottom line is that the business of business will always be business. There was a time when the activist-media-academia-foundation climate nexus was at its zenith (just before the COVID pandemic around the time when some caustic Swedish teenager was going around randomly insulting the world) and the narrative was dominated by relentless fear campaigns, precise forecasts of the extinction of humanity and an active drive to end capitalism. Back then, the financial community’s enthusiasm to support these climate campaigns by bullying their clients into buying into their ESG products made some sort of business sense.
Until it didn’t.
Now other issues are capturing our attention and the world has, embarrassingly, moved on. Climate change has been banalized. Like the ozone layer depletion that was going to burn humanity to a crisp, the release of dioxins that would lead to a massive increase in cancers, and endocrine disrupting chemicals that were predicted to make us all sterile, hyperbole and empty fear campaigns can only be leveraged so far. After more than two decades of intensive scaremongering, the climate campaign, as the first fully integrated environmental issue of the Internet Age, has been a better ride than most activists could ever have dreamt.
Farewell Net-Zero – your absolutism was really quite an absurd overreach.