The Net-Zero Banking Alliance, a UN-backed coalition of banks aimed at advancing global Paris Agreement climate goals through their financing activities, announced a series of significant changes to its framework and principles for members, including eliminating a mandatory requirement for banks to align lending and capital markets activities with the goal of limiting global warming to 1.5°C.

The changes follow a rapid-fire series of departures from the alliance over the past few months, which saw all major U.S., Canadian and some other banks leaving the NZBA, as political pressure, particularly in the U.S., has targeted financial institutions participating in climate-focused coalitions.

The NZBA said that its members “voted overwhelmingly” in favour of the changes, which it said will enable the group to increase focus on “unlocking opportunities for financing real economy decarbonization.”

At its launch in 2021, the NZBA set requirements for members to commit to transitioning operational and attributable greenhouse gas (GHG) emissions from their lending activities to align with net zero pathways by 2050, and to set 2030 financed emissions targets, initially focused on key emissions intensive sectors. In April 2024, the group issued new guidelines for climate target setting for banks, expanding its requirements to include a commitment to align capital markets activities such as debt and equity underwriting to bank’s 2050 net zero goals, in addition to the prior lending-focused commitment.

After rapidly expanding from 43 banks at launch in 2021 to over 140 banks representing $74 trillion in 2024, members of the group have come under significant pressure, particularly from Republican politicians in the U.S., who have been warning financial institutions including banks, insurers, asset owners and investors of potential legal violations from their participation in climate-focused alliances and of plans to exclude the companies from state business, as part of a broader anti-ESG political campaign. Following the departure of several high-profile banks, the alliance currently stands at 128 banks, representing $47 trillion of assets.

Alongside the announcement, the NZBA released revised guidelines for members, significantly softening the language from its 2024 guidelines which had included a series of mandatory requirements for banks. Among the most notable changes, the 2024 guideline stated that “banks shall set a 2050 target to support meeting a 1.5°C by end of century outcome and a net-zero by 2050 goal,” with an explanation that this was “mandatory, on a comply-or-explain basis,” while the updated document includes a “recommendation” that states that “banks should set a 2050 target to support meeting a net-zero goal and the goals of the Paris Agreement.” (emphasis added by ESG Today).

The NZBA noted that the changes were made in response to a “new reality” in which “the external landscape for banks has rapidly changed,” with the organization’s next phase aimed at “supporting member banks to progress against their individual climate-related strategies,” and helping banks to “address constraints on green growth by working with their clients to advance policies that stimulate markets and unlock opportunities for investment.”

Shargiil Bashir, NZBA Chair and Chief Sustainability Officer and Executive Vice President at First Abu Dhabi Bank, said:

“As the largest global initiative specifically focused on supporting climate mitigation action by banks, NZBA is uniquely positioned to provide practical support to banks navigating the net-zero transition. I welcome the decision by members to progress NZBA into its new chapter.”