- Article Summary
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Introduction
The Net Zero Banking Alliance (NZBA) has collapsed less than five years after its celebrated launch. Once heralded as a turning point for sustainable finance, the alliance had swelled to include around 140 banks at its peak. Its rapid unraveling reveals not only the power of political and economic pressure but also the inherent fragility of voluntary climate initiatives in finance. The failure of NZBA is more than just a headline: it underscores the challenges of aligning global finance with the net zero transition when political cycles, profitability, and governance collide. This article examines the rise and fall of the NZBA, the reasons behind its collapse, and what it means for the future of sustainable finance.
The Rise and Fall of NZBA
When the NZBA was launched in 2021 under the Glasgow Financial Alliance for Net Zero (GFANZ), it carried lofty commitments. Member banks pledged to align their lending and investment portfolios with net zero by 2050 or sooner, set interim 2030 targets, and disclose annual progress. Within months, membership grew from 43 founding institutions to 136, giving the alliance enormous symbolic weight. For a moment, it seemed finance had embraced its role in driving the global transition.
But the optimism did not last. In 2023, cracks began to show as major U.S. banks including JPMorgan Chase, Citi, Morgan Stanley, and Bank of America withdrew amid political and legal challenges. Canadian banks, heavily exposed to fossil fuel financing, followed. Soon after, European institutions such as HSBC, Barclays, and UBS exited as well, leaving the alliance hollowed out. By 2025, the NZBA announced it would suspend operations entirely as members debated whether to dissolve or downgrade it into a framework initiative.
Table 1: NZBA at Its Peak vs Today
| Indicator | At Peak (2022) | 2025 Status |
|---|---|---|
| Member Banks | ~140 | ~125 |
| Interim Net Zero Targets | ~100 banks | ~20 banks |
| Alliance Status | Rapid growth | Suspended |
Political and Economic Pressures Driving the Collapse
The collapse of the NZBA cannot be understood without looking at U.S. politics. Republican-led states launched a coordinated campaign against banks participating in the alliance, accusing them of colluding against fossil fuel companies and threatening them with antitrust lawsuits. At the same time, Donald Trump’s return to political prominence created fears of direct retaliation against banks that stayed aligned with net zero commitments. For large U.S. institutions, the risk of losing access to state contracts and facing political scrutiny outweighed the reputational benefits of climate leadership.
Economic realities also undermined the alliance. Fossil fuels remain profitable and legal, and banks are bound by fiduciary duties to maximize returns. As long as governments continue to support fossil fuel industries, banks will find it difficult to exit such investments at scale. European banks, initially more supportive, eventually followed their U.S. peers out of NZBA, unwilling to risk competitive disadvantage in global markets.
Figure 1: Timeline of Bank Exits from NZBA (2023–2025)
- 2023: U.S. banks including JPMorgan Chase, Citi, Morgan Stanley, and Bank of America begin exits under political pressure
- 2024: Canadian banks such as RBC and Scotiabank follow, citing fossil fuel exposure
- 2024–2025: European banks including HSBC, Barclays, and UBS retreat, fearing market disadvantage
- 2025: NZBA suspends operations
Why NZBA Was Always Fragile
While political backlash accelerated NZBA’s demise, structural weaknesses made collapse almost inevitable. From the start, NZBA was designed as a broad-tent coalition, inviting as many banks as possible. This approach created momentum but diluted ambition. To accommodate diverse members, the commitments were kept general and enforcement weak. There were no penalties for withdrawal and limited mechanisms to ensure consistent disclosure.
In effect, NZBA offered reputational benefits without binding obligations. Once external pressure mounted, members could simply walk away. In contrast, regulatory frameworks such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) compel compliance through legal requirements, creating stronger incentives for action.
Table 2: Voluntary vs Regulatory Approaches to Sustainable Finance
| Aspect | Voluntary Alliances (e.g., NZBA) | Regulatory Frameworks (e.g., CSRD, CSDDD) |
| Membership | Open, broad-tent | Defined by jurisdiction and activity |
| Commitments | General, non-binding | Legally binding and enforceable |
| Accountability | Limited, reputational | Mandatory reporting and audits |
| Enforcement | None | Legal penalties for non-compliance |
The Road Ahead for Sustainable Finance
The end of NZBA does not mean banks will abandon sustainability altogether. Many institutions may continue to pursue climate goals quietly, below the radar, to avoid political scrutiny while still managing transition risks. Others may regroup into smaller, sector-specific coalitions that are easier to align and more resilient to external pressure. The future of sustainable finance is likely to shift from large, symbolic alliances to more focused and pragmatic initiatives.
Governments also have a critical role to play. As long as fossil fuels remain profitable, banks will continue financing them. Effective policy must tackle the underlying economics by setting clear rules on carbon pricing, subsidies, and transition incentives. Employees and civil society will also remain important forces, pushing banks internally and externally to maintain climate commitments.
Figure 2: Future Pathways for Net Zero Finance
- Voluntary initiatives: Smaller, focused alliances
- Regulatory frameworks: Mandatory disclosures and due diligence
- Hybrid models: Voluntary action reinforced by legal structures
Conclusion
The collapse of the Net Zero Banking Alliance is a cautionary tale. It highlights how political backlash, economic contradictions, and weak governance can unravel even the most ambitious voluntary initiatives. Yet it also offers lessons for building more resilient models of climate finance. The road forward will require stronger regulation, smaller and more committed coalitions, and frameworks that can withstand political cycles. Sustainable finance is not dead, but its future will depend on credibility, enforceability, and alignment with the realities of the real economy. The lesson from NZBA is clear: voluntary commitments alone are not enough to drive lasting change.
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