Context: In recent weeks, several leading American banks, including Citigroup, Goldman Sachs, Wells Fargo, Bank of America, and Morgan Stanley, have exited the Net Zero Banking Alliance (NZBA). This withdrawal comes amidst shifting political dynamics in the United States, raising concerns about the country’s commitment to global sustainability goals.

About Net Zero Banking Alliance

• The Net Zero Banking Alliance (NZBA) was founded on April 21, 2021, under the auspices of the United Nations Environment Programme Finance Initiative (UNEP FI).

• Led by banks and convened by the UN, this alliance comprises leading global banks dedicated to aligning their lending, investment, and capital market activities with net-zero greenhouse gas emissions by 2050.

• It aims to bring together leading financial institutions globally to combat climate change and align with the Paris Agreement.

• Notably, no Indian bank is part of NZBA.

• It serves as the climate accelerator for the UNEP Finance Initiative’s Principles for Responsible Banking (PRB).

Objectives of the NZBA

• Align lending, investment, and capital markets activities with net-zero emissions by 2050.

• Set interim targets for 2030 or earlier, focusing on the most carbon-intensive sectors.

• Annually report progress and emissions reductions.

• Facilitate the decarbonization of the global economy through collaborative frameworks.

• Membership: Initially founded by 43 global financial institutions, including Citibank and Bank of America.

• Grew to include 142 members from 44 countries, representing nearly half of global banking assets (~USD 64 trillion).

• India is not directly a part of the Net Zero Banking Alliance (NZBA), as no Indian banks have formally joined the initiative.

Why Did Major Banks Exit the NZBA?

• The exits occurred between the U.S. presidential election and inauguration of a pro-fossil-fuel administration.

• The incoming President has expressed scepticism about climate change and Favors oil and gas investments, creating an unfavourable policy environment for sustainable finance.

• The withdrawal of U.S. banks has shifted the balance of power within the alliance to European banks, such as HSBC and Barclays.

• UNEP Finance Initiative:

• The United Nations Environment Programme Finance Initiative (UNEP FI) was established in 1992 to engage the finance sector with sustainability principles.

It promotes responsible finance through frameworks like:

• Principles for Responsible Banking (PRB)

• Principles for Sustainable Insurance (PSI)

• Over 500 banks and insurers with assets exceeding USD 170 trillion are implementing UNEP FI’s principles.

• UNEP FI remains a pioneer in integrating sustainability into global financial practices.