The Great Climate Finance Divide: What the NZBA Bank Exodus Means for Net-Zero Goals

Written by Dr Zainab Bibi

In July 2025, four of the world's largest financial institutions—HSBC, JPMorgan Chase, Citigroup, and Morgan Stanley—withdrew from the United Nations-backed Net-Zero Banking Alliance (NZBA). This marked a significant turning point in the global movement towards sustainable finance and has triggered widespread debate over the future of climate accountability within the banking sector.

What Is the Net-Zero Banking Alliance (NZBA)?

The NZBA was launched in April 2021 by the United Nations Environment Programme Finance Initiative (UNEP FI) to bring global banks together in aligning their lending and investment portfolios with net-zero emissions by 2050. The NZBA is part of the broader Glasgow Financial Alliance for Net Zero (GFANZ), formed during COP26 to coordinate finance sector efforts aligned with the Paris Agreement.

At its height, the NZBA boasted 144 banks from 44 countries, representing over $74 trillion in assets—approximately 41% of global banking assets. Members agreed to set intermediate targets for 2030, disclose progress annually, and reduce their financed emissions in line with the 1.5°C pathway.

What Prompted the Exit?

1. Regulatory and Political Backlash

In the United States, Republican-led states launched a fierce campaign against ESG (Environmental, Social, and Governance) investing. Banks were accused of colluding against the fossil fuel industry, facing threats of antitrust investigations and exclusion from government contracts. According to Reuters, this led JPMorgan Chase, Citigroup, and others to reassess the risks of staying in the NZBA amid growing political hostility.

2. Desire for Flexibility and Autonomy

Banks like HSBC claimed that they had developed robust internal net-zero plans and no longer required alliance membership to implement them. HSBC stated its withdrawal was motivated by a wish to "implement its own transition plan independently" (The Guardian). Critics view this as a way to sidestep more rigid NZBA frameworks.

3. Economic Interests in Fossil Fuels

Despite public commitments to sustainability, many of these banks are heavily invested in fossil fuels. According to the Banking on Climate Chaos report, they rank among the top global financiers of coal, oil, and gas. NZBA membership placed scrutiny on these investments, which banks are now seeking to avoid.

4. Weak Enforcement Mechanisms

The NZBA is voluntary, with no legally binding mechanisms or penalties for withdrawal. This allowed banks to exit without consequences beyond reputational risk.

The Broader Impact

Erosion of Trust

Environmental advocates have accused these banks of greenwashing—promoting sustainability credentials without real change. IEEFA warns that these exits could severely damage public trust in net-zero commitments.

According to Grist, six of the largest U.S. banks left the NZBA just before a likely Trump administration return, underscoring fears of regulatory rollback.

Slowing the Flow of Green Finance

Without NZBA accountability, banks may reduce or slow funding for green projects like renewable energy, climate tech, and sustainable infrastructure. The withdrawal jeopardises trillions in capital urgently needed for the energy transition.

Fragmentation in Climate Standards

With the U.S. banks exiting, the NZBA is now predominantly composed of European and Asian banks. This may deepen a transatlantic divide in climate finance strategy and create inconsistent standards across the sector.

Legal and Regulatory Fallout

Governments and regulators may respond to these withdrawals by enforcing stricter climate-related disclosures and capital requirements.

In the EU, mandatory climate risk disclosures are already in place. California has enacted similar rules. Legal action is also escalating: NGOs are suing banks like ING and BNP Paribas, claiming they breach fiduciary duties by financing fossil fuels (Milieudefensie).

Who Remains in the NZBA?

While the exits are significant, many major banks remain committed:

• Barclays, Lloyds, NatWest, and Standard Chartered in the UK

• BNP Paribas, Deutsche Bank, and Santander in Europe

• DBS and OCBC in Asia

These banks continue to disclose their emissions, set science-based targets, and maintain stakeholder trust.

Case Study: Triodos Bank

Triodos Bank responded to the wave of withdrawals by urging the formation of a "coalition of the willing" within NZBA. They advocate for stronger requirements and view this moment as an opportunity to enhance, rather than dilute, climate ambition (Triodos Blog).

Investor and Consumer Reactions

Investors managing trillions in assets are scrutinising bank climate strategies more closely. At HSBC’s May 2025 AGM, shareholders questioned the bank’s commitment to net-zero after its NZBA exit. ShareAction, an investor coalition, called the move "counterproductive" (ESG Today).

Retail customers are also increasingly switching to ethical banking alternatives. Surveys show younger generations are particularly motivated to move their money away from banks financing fossil fuels.

The Future of Climate Finance

1. From Voluntary to Mandatory Governance

Voluntary pledges may give way to enforced regulation. Global bodies like the Financial Stability Board and NGFS are considering climate-linked capital requirements and standardised disclosures.

2. Rise of Litigation

Legal accountability is growing. In the Netherlands, Milieudefensie has filed a case against ING for financing fossil fuel expansion, citing legal duty of care. BNP Paribas faces similar action in France under a corporate duty of vigilance law.

3. Two-Speed Finance Sector

Banks may split into two groups:

• Pro-climate banks with transparent targets and robust net-zero strategies

• Fossil-aligned banks exposed to political influence and short-term profit motives

This divergence could affect capital flows, investor preferences, and regulatory treatment.

4. Market Opportunities for Green Finance

Despite setbacks, green finance remains a trillion-dollar opportunity. Banks that lead on climate can capture emerging markets in clean energy, sustainable transport, and green bonds. Europe-based banks that remain in NZBA may find themselves gaining competitive edge.

5. Watchdogs and Transparency Tools

External organisations will continue monitoring bank climate action. Reports like Banking on Climate Chaos and tools from CDP and Transition Pathway Initiative will hold banks accountable, even outside formal alliances.

Call for Action:

The withdrawal of major banks from the Net-Zero Banking Alliance has exposed the limitations of voluntary climate initiatives. Yet, it has also galvanised regulators, civil society, and committed banks to double down on climate accountability. While these exits are a blow to international coordination, they may ultimately accelerate the evolution of more robust, enforceable climate finance standards.

Those banks that remain in NZBA have a unique opportunity—and responsibility—to lead. Through transparent reporting, science-based targets, and strategic investment in low-carbon sectors, they can demonstrate that sustainable banking is not only credible but commercially viable.

As political tides shift and the climate crisis intensifies, the financial sector will face growing scrutiny. In this evolving landscape, actions must speak louder than alliances.

Now is the time for stakeholders—regulators, investors, civil society, and customers—to hold financial institutions accountable. Demand transparency. Ask where your money is going. Support banks that prioritise sustainability and challenge those that backtrack. The future of climate finance depends on our collective vigilance and engagement.

At RTN Zero Consulting Ltd., we specialise in supporting SMEs, financial institutions, and mission-driven organisations in navigating the complex landscape of climate finance and net-zero strategy. Whether you're looking to develop a credible sustainability plan, improve your climate risk disclosures, or align your operations with global frameworks like the NZBA or TCFD, our expert team provides tailored, actionable guidance. In a time when transparency, compliance, and stakeholder trust are more important than ever, we help you turn climate ambition into measurable impact.

We hope this special edition of Sustainability Spotlight has shed light on the shifting landscape of climate finance 💸🌍 — and how the choices banks and institutions make today ripple across the planet’s future 🌱📉🌡️. The withdrawal of major banks from the Net-Zero Banking Alliance isn’t just a policy shake-up — it’s a wake-up call 📢❗for accountability, transparency, and bold climate leadership 🔍🧭.

🏦 Whether you're a business aligning your strategy with net-zero goals, an SME navigating climate risks, or a finance professional exploring greener portfolios 🌿📊 — your actions matter. Every pound you invest, every disclosure you make, every policy you adopt helps shape a more just, resilient economy 🌎⚖️.

💬 So let’s keep the conversation going! Are you rethinking your organisation’s climate commitments? Exploring low-carbon lending or sustainable business models? 🚀🔄🌾 We’d love to hear from you — and connect you with others who are building a cleaner, fairer financial future 💚🤝.

📬 Stay tuned to Sustainability Spotlight for more insights into climate-smart banking 🏦🌤️, ESG strategy 📈📋, and how we can turn net-zero talk into real-world impact 🛠️🔥. Together, we’re not just watching the change — we’re banking on it 💥🌐.