The global climate alliance is crumbling

“The revised guidance should at least include the Race to Zero criteria for phasing out all undiminished fossil fuels and restricting the development, funding and facilitation of new fossil fuels, which does not include new coal projects,” Triodos wrote in a statement. The company is demanding that the NZBA roll out the new rules by this year’s COP28 climate change conference. COP28 starts on November 30th.

A green bank has already left: at the beginning of the year, the GLS Bank from Bochum said goodbye to the NZBA. “We left the alliance because some other members pay too little attention to their own climate impact and have made too little effort to improve it,” says board spokeswoman Aysel Osmanoglu. Like Triodos two years ago, GLS was one of the founding members of the alliance.

alliance in a bind

This puts the climate initiative in a quandary. Because in the fall, Wall Street banks such as JP Morgan and Bank of America protested against stricter rules and threatened to withdraw from the NZBA. More than 126 banks belong to the NZBA, which together have total assets of USD 73 trillion. That equates to 41 percent of global banks. The financial institutions are committed to reducing their loan and investment portfolios to net-zero emissions by 2050. The three alliances – NZBA, NZIA and NZAM – together form the Glasgow Financial Alliance for Net Zero (GFANZ).

Experts believe that if more sustainable banks exit, it could damage the reputation of the UN alliance. “That would be absolute discredit. If the NZBA loses these members, it would be seen purely as a means of greenwashing big banks,” says Tobias Tröger, who heads the Law and Finance department at the Leibniz Institute for Financial Market Research SAFE.

The policies of the Race to Zero campaign have previously caused conflict within the banking alliance. Race to Zero is an initiative that requires participants to limit development, funding and support for new fossil fuel assets. The NZBA, like other climate alliances in the financial sector, was recognized as a partner of Race to Zero.

When the campaign tightened its criteria last year to such an extent that all members were not allowed to finance new coal projects, it sparked a dispute that almost led to the Wall Street banks leaving. GFANZ subsequently abandoned the standards.

Vanguard, in turn, is likely to have resigned because of the political pressure that weighed on the asset manager in the United States. Republicans have attacked financial firms they say are hostile to the fossil fuel industry. They urged regulators to stop allowing Vanguard to buy shares in US utility companies. Munich Re announced at the end of March that it was leaving the alliance of insurers due to antitrust concerns. However, the reinsurer remains a member of the NZAM. The Zurich Group also remains part of the alliance of asset managers. Zurich said the company wants to focus its resources on helping customers make the transition.

compromise next year

So the UN alliance has to find a compromise if it wants to placate and retain its members, large and small. “NZBA signatories will carefully consider proposals to amend the guidance,” said Remco Fischer, head of climate at the UN Environment Program Finance Initiative, of which the NZBA is a part. He does not want to comment on whether there are already concrete discussions about the demands of the small members and what is being discussed there.

However, the net zero alliance will not meet the deadline set by Triodos Bank in its statement. Fischer answers the Handelsblatt: “The first revision is expected for April 2024.”

From the point of view of scientist Tröger, the settling movements are dangerous. He thinks the Alliance should go on the offensive. In any case, it is not in the interest of the NZBA to represent only large institutions. “The value of such an alliance consists not only of the size of its members, but also of their credibility,” says the SAFE employee.

Here the small banks would score more. But the GFANZ alliances also depend on the large members in order not to end up in a niche existence. That’s why Allianz is reaching its limits with goals that are too ambitious for Wall Street banks.

How can an initiative save itself between insignificance and implausibility? “Voluntariness is the crux. An alliance can only work if the banks are forced to justify themselves,” says Tröger. He suspects that attempts are already being made behind the scenes to find a compromise, but the only question is what that could look like.

Fischer does not want to speculate about the extent to which Allianz is editing its guidelines. But the NZBA will take into account various inputs, including from members, civil society organizations and the UN Secretary-General’s Expert Group on Net Zero Emission Commitments of Non-Governmental Entities.

GLS continues in Germany

The GLS Bank in Bochum no longer has to deal with the Allianz internals. She justified her resignation with a report by the environmental organizations Reclaim Finance and Urgewald, among other things. This shows that NZBA members in Africa have continued to finance new coal, oil and gas projects.

According to the study, the major banks Citigroup, JP Morgan Chase, BNP Paribas, Bank of America and Société Générale have promoted fossil fuel companies the most. Deutsche Bank is also on the list of the two environmental organizations, so it has therefore continued to finance fossil projects.

A climate alliance was also formed in the German financial sector years ago. 20 German banks have signed the self-commitment since 2020. There from the start: the GLS Bank and Triodos. The GLS also criticizes some developments in the German alliance. But the bank hopes to achieve more in a smaller circle than in the UN initiative.

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