Recent withdrawals by major banks from net-zero banking alliances have triggered significant concerns about the future trajectory of the global Voluntary Carbon Market (VCM). The departure of numerous financial institutions from climate coalitions, like the Net-Zero Banking Alliance (NZBA), raises critical questions about the banking sector’s net-zero goals and its role in financing decarbonization efforts across all sectors.
Launched ahead of COP26 in April 2021 under the leadership of Mark Carney and Michael Bloomberg, the Glasgow Financial Alliance for Net Zero (GFANZ) was established as a coalition of financial institutions collectively overseeing USD 130 trillion in assets, aiming to align portfolios with the Paris Agreement’s 1.5°C target. The NZBA, Net Zero Asset Managers Initiative, and Net-Zero Asset Owner Alliance, all operating under the broader umbrella of GFANZ, have recently seen high-profile departures, with the potential for additional exits going forward.
Since December 2024, the six largest banks in Canada have left the NZBA, joining high-profile American banks such as JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and others. These actions have been tied to political risks and growing environmental, social, and governance (ESG) backlash, as recent campaigns have framed climate alliances as anti-competitive and legally precarious. In response, banks have framed their strategic retreat from climate alliances and the scaling bank of their climate commitments as necessary realignments with evolving regulatory landscapes and client priorities. Several institutions cite the need to avoid perceived antitrust violations stemming from collaborative decarbonization targets, particularly under intensified scrutiny from lawmakers.
An emphasis on developing the fossil fuel industry in the US may also play a role due to potential conflicts with the NZBA. The Trump administration's pro-fossil fuel stance and plans to expand domestic oil and gas production have created tension with the NZBA's goals of reducing financed emissions in high-carbon sectors. Banks may face pressure to support these industries, which are often major clients, or they may see recent developments as an opportunity to improve risk and return profiles.
Cause for Concern?
Banks have insisted that their departure from these net-zero alliances does not affect their climate goals. The reassurance provided by the leaders of these banks may alleviate some doubts regarding their climate commitments, but future developments could indicate reduced ambition. Internally, sustainability-related roles have also seen a shift that may reflect the deprioritization of climate action. HSBC, for example, pushed back their original net-zero emissions target by 20 years, from 2030 to 2050. The organization also pulled out of its plans to create a carbon trading desk in November 2024. However, HSBC remains part of the NZBA despite its recent activity, suggesting that membership in these alliances does not necessarily equate to an organization’s climate ambition and future actions.
Since the political landscape will continue to change, the actions of these banks may be considered temporary. However, recent developments add to some of the headwinds that the VCM has recently faced. Financial institutions play a key role in providing market liquidity, capital for carbon offsetting projects, and various other financial products that enable the functioning and growth of carbon markets. Additionally, the departure of some of the largest financial institutions in the world from net-zero alliances could undermine the authority of international organizations such as the UN Environment Programme Finance Initiative (UNEP FI), which enables global collaboration.
While financial institutions continue to evolve their approach, climate disclosure regulations are simultaneously weakening. Both the US Securities and Exchange Commission (SEC) and the European Commission have rolled back certain climate-related regulations, citing deregulation as a lever for near-term economic growth. These developments may incentivize or amplify the deprioritization of climate action by financial institutions, leading to long-term changes in emissions reduction pathways.
Amidst the departure of the largest banks, GFANZ has announced its plan to restructure and change its priorities for 2025. The organization now aims to help mobilize capital for the transition. This could signal a shift toward leaning into state-backed climate finance, through leveraging mechanisms such as Article 6, or it could be a temporary adjustment to maximize GFANZ impact under the current political and regulatory landscape.
In the GFANZ’s 2024 progress report, the organization explicitly stated a priority of strengthening the VCM. While GFANZ’s support for the VCM is expected to continue, the scale and scope of its efforts could evolve due to the departure of many organizations. Article 6 is expected to play a critical role going forward since recent developments have helped operationalize the mechanism. International carbon markets will be able to provide market liquidity and other benefits to the VCM, helping to offset the potential impacts of reduced climate ambition in the financial sector.
The withdrawal of major financial institutions from net-zero alliances highlights the shifting landscape in regulation, climate commitments, and economic development. Combined with recent developments, these shifts are expected to help shape the future of voluntary markets.