(Bloomberg) -- Inside the world’s biggest climate-finance alliance, a number of green banks are reviewing their membership in objection to perceived concessions to Wall Street.
The Net-Zero Banking Alliance, which is a sub-unit of the Glasgow Financial Alliance for Net Zero, faces a potentially embarrassing mutiny from some of the world’s most climate-conscious lenders after it decided against imposing binding restrictions on fossil-fuel financing. One lender, Germany’s GLS Bank, has already walked out in protest. Now, others say they may follow.
Compromises made by NZBA to keep Wall Street firms on board are “disappointing and discouraging,” said Jeroen Rijpkema, chief executive officer of Triodos Bank, a green lender from the Netherlands. Gareth Griffiths, CEO of the UK’s Ecology Building Society, described as “frustrating” the fact that major NZBA members continue to finance new fossil-fuel exploration, which is “incompatible with net zero.”
Both Triodos and Ecology said they will review their membership in the alliance and may walk away if the group doesn’t tighten its rules around the funding of fossil fuels.
Read More: Citi, BofA Lead Wall Street Banks Funding Fossil-Fuel Expansion
The compromises in question relate to a decision late last year by the net-zero alliance to loosen ties with Race to Zero, a United Nations-backed group behind proposed restrictions that would have forced members to phase out their financing of oil, gas and coal. JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. threatened to leave NZBA if such limits were imposed, people familiar with the process said at the time. Part of their concern hinged on the legal liability that binding terms represented, the people said.
The upshot is that banks can continue to call themselves alliance members without being subject to externally imposed limits on their fossil-fuel financing. As a result, “a significant proportion of NZBA members continue to lack an appropriate approach to their own climate and environmental impact,” a spokesperson for GLS said earlier this month.
GFANZ expanded its membership to 550 financial firms last year with about $150 trillion in combined assets. Together, Triodos, Ecology and GLS account for just a tiny fraction of that. Yet the lenders represent some of the highest green standards in finance, and their departure would mark a reputational setback for GFANZ and NZBA.
Meanwhile, JPMorgan, Morgan Stanley, Bank of America and others find themselves at the receiving end of climate activism intended to expose their perceived lack of credible net-zero plans. As You Sow, a climate nonprofit, just filed shareholder resolutions asking the three Wall Street firms, along with Goldman Sachs Group Inc. and Wells Fargo & Co., to disclose climate transition plans in order to “assure investors and the public they have a path forward” to meet their stated net-zero goals.
A spokesperson for NZBA said the alliance doesn’t comment on individual banks.
As an umbrella group for all net-zero finance alliances, GFANZ faces an increasingly tough balancing act. Late last year, Vanguard Group Inc. walked out of the asset manager coalition after scoring the lowest results in addressing its financed emissions. Vanguard CEO Tim Buckley told the Financial Times in a report published Tuesday that he felt "our voice was being drowned out or confused.” Vanguard said in December that it plans to keep investors informed of its ongoing climate work.
Read More: Vanguard Defends Its Strategy as Critics Slam Net-Zero Exit
Remco Fischer, climate lead at the United Nations Environment Programme Finance Initiative, which convenes NZBA, said members, which include global systemically important banks, are expected to set decarbonization targets that “reflect decreasing use” of unabated fossil fuels in accordance with emissions-reductions pathways aligned with keeping the increases in global temperatures to below 1.5C.
Ben Caldecott, director of the Oxford Sustainable Finance Group at the University of Oxford Smith School of Enterprise and the Environment, said given the alliance’s size, “it was always going to be hard” to be the high ambition coalition. “It has real leaders and it has some laggards, and that reflects what it is trying to achieve: improving practice across a variegated industry,” he said.
“I understand the frustrations of members who want to pick up the pace – we are facing a climate emergency after all – but I’d caution against giving up on the coalition too soon," said James Vaccaro, who leads the Climate Safe Lending Network. “The most progressive institutions should stretch the ambition of those less advanced, but if they want to optimize their positive influence they should be leading from the inside."
Rijpkema at Triodos Bank said some laggards appear to have too much leeway. The fact that “some financial institutions that have signed the commitment still finance fossil-fuel expansion and exploration” is “not in line with the commitment financial institutions have made and does not bring the 1.5C scenario any closer,” he said.
The Dutch bank, which has committed to reaching net zero by 2035, 15 years earlier than the NZBA requires, joined the banking alliance as a founding member. Triodos said being an NZBA member should “at a minimum” require banks to follow the criteria that had been proposed by Race to Zero.
NZBA is due to revise its target setting guidelines by April 2024 at the latest as part of a periodic review of its criteria. In an unrelated move, Norwegian green energy investor Aker Horizons has left GFANZ’s asset management sub-group. While Aker continues to support the goals of the Net Zero Asset Managers initiative, the firm’s model of taking large ownership stakes means the alliance “is not well adapted to the reality and needs of our company,” said a company spokesman.
“It is frustrating that it appears that some of the requirements of the UN’s Race to Zero climate action campaign have been dropped by NZBA,” said Griffiths of Ecology Building Society. “Also frustrating, is that a number of NZBA members are still providing finance for new fossil-fuel explorations. If we don’t see NZBA being an enabler in creating a fair society in a sustainable world, then we will need to reconsider our membership.”
(Michael Bloomberg, founder of Bloomberg News parent Bloomberg LP, is co-chair of GFANZ .)
(Add background on Vanguard departure late last year)
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