It took little more than a month after Donald Trump’s election last year for Goldman Sachs Group Inc. to retreat from the industry’s biggest climate coalition. It was the first U.S. bank to do so, but not the last. Within weeks, all of America’s top lenders followed Goldman out the door.
Wall Street, it appeared, was engaging in anticipatory obedience to an administration that’s deeply scornful of climate science, reviles net-zero goals and is less-than-shy about trying to punish those who don’t follow its lead.
Still, banker fear of the new U.S. president wasn’t the only reason for the exodus. Wall Street was already souring on the Net-Zero Banking Alliance.
Frustration with the NZBA inside the banks had been bubbling for some time, according to people familiar with the matter. Since at least last summer, senior bankers from firms including JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. were sounding each other out about a retreat.
Though many bankers had wanted to leave the group for awhile, they feared a backlash from advocates and investors who favour sustainability, said the people, who asked not to be identified while discussing private discussions. (Spokespeople for the three banks declined to comment.)
In the days after Goldman decided to back out, the calculus changed. JPMorgan’s board discussed its rival’s exit and its own position, while shortly after that, top-ranking sustainability officials at Morgan Stanley analyzed whether there were any benefits from sticking with NZBA now that Trump—who has called climate change a hoax—was taking office. The overwhelming response was no.
Part of the problem, according to Royal Bank of Canada Chief Executive Officer David McKay, was that NZBA is tied to what he argued is “a scenario that’s becoming increasingly improbable.” The bank withdrew from NZBA in late January.
NZBA signatories have committed to align their portfolios with a world in which net-zero emissions is reached by 2050 and the average global temperature rise keeps to the Paris Agreement’s stretch goal of 1.5C above pre-industrial levels by 2100.
Scientists have concluded that it’s somewhere between “likely” and “virtually certain” we’re in the midst of a 20-year period where the Earth breaches 1.5C, and the United Nations has warned humanity is on course for twice that much warming—considered to be a catastrophic outcome for billions of people. For Aniket Shah, head of sustainability and transition strategy at Jefferies Financial Group Inc., this reality raises awkward questions for bankers.
“The world isn’t on a path for net zero by 2050 and so any bank or asset manager that’s being told to align lending or investment practices to that kind of pathway is aligning with a fictitious world,” he said.
After the biggest U.S. and Canadian banks quit NZBA, the climate alliance sought to address those concerns with a proposed restructuring that would remove a requirement for signatories to align their portfolios with 1.5C.
A spokesperson for NZBA said the alliance is uniquely placed to help banks navigate the net-zero transition and that it’s currently undergoing a strategic review that will ensure it supports members’ developing needs.
As I reported today, this is a pivotal moment in a broader reset for climate finance, and it isn’t without financial jeopardy. Larissa de Barros Fritz, a senior fixed-income strategist at ABN Amro, wrote in a recent research note that banks may be “faced by a fast-shrinking balance sheet” if they opt to pursue ambitious climate strategies at a time when policymakers—despite the grave threat posed by climate change—are dumping environmental commitments and tightening their embrace of fossil fuels.
On the other hand, should those same governments eventually choose to reverse course again, some banks may find themselves holding a pile of unprofitable stranded assets, she said.
For the moment, however, banks that focus on decarbonization are likely to be penalized the most, said Nigel Topping, the former United Nations climate champion for COP26.
Currently, any bank CEO who says “I’m going to exit the fossil-fuel sector would be sacked the next day” because the company would be giving up too much earnings potential, Topping said.
Even so, Rhian-Mari Thomas, a former Barclays Plc banker who now runs the Green Finance Institute, says financial actors have a long-term business interest in acknowledging the risks posed by a warming planet.
“The need for financial institutions to meet their fiduciary duties is often cited as a reason not to pursue opportunities that are aligned with net-zero pathways,” she said. “Surely another consideration, based on science, is to ensure market integrity: Deals that may seem rational in the short term could ultimately threaten the resilience of the markets.”
Sustainable finance in brief
The rush by Wall Street to get on the administration’s good side has become a stampede in the broader climate finance space. While Trump urges more fossil fuel development and tries to unravel previous U.S. efforts to combat global warming, companies have all but abandoned the green bonds once touted as a way for corporate America to have a hand in fixing the planet.
Only one such U.S. dollar bond from an American firm has hit the market in 2025, marking the slowest start to a year in at least a decade.
For years the main sellers of the bonds have included banks, utilities and companies like Apple Inc. and Walmart Inc. But no more. Now companies are seeking to mollify emboldened GOP politicians who have accelerated their attacks on investments that promote environmental sustainability.
“In the U.S. especially,” said Andrew Poreda, a senior research analyst on Sage Advisory Services’ responsible investing team, “it’s been a pretty steep, decent decline and a bleak outlook moving forward.”
Alastair Marsh, Bloomberg News
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