The Net-Zero Banking Alliance Transformation: What Canadian Financial Leaders Need to Know

The Net-Zero Banking Alliance is undergoing a fundamental restructuring that could reshape how global banks approach climate commitments. Here's what's happening and why it matters for Canadian financial institutions.

Background and Current Status

The NZBA, established in 2021 as the banking component of Mark Carney's Glasgow Financial Alliance for Net Zero, brought together banks committed to aligning their lending and investment activities with net-zero emissions by 2050. At its peak, the alliance included 144 members managing over $71 trillion in assets.

On August 27, 2025, the NZBA Steering Group initiated a member vote to transition from a membership-based alliance to a new framework initiative. The alliance has paused activities pending the vote outcome, which is expected by the end of September 2025.

The Departure Timeline

The shift began in December 2024:

• Goldman Sachs announced its departure.
• Within weeks, five more major U.S. banks followed: JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, and Wells Fargo.
• January 2025: Canada's five largest banks exited (TD, BMO, National Bank, CIBC, Scotiabank).
• Summer 2025: HSBC (July), UBS, and Barclays (August) departed.

These departures removed approximately 20% of the alliance's total assets under management.

Understanding the Drivers

Several factors contributed to these exits:

1. Political and Legal Pressure President Trump's re-election signaled a shift in U.S. climate policy. More immediately, 22 Republican state attorneys general accused major banks of colluding to block financing for oil and gas companies. Texas authorities were actively reviewing four banks for potential violations of state laws prohibiting boycotts of the energy sector.
2. Evolving Institutional Capabilities Many departing banks indicated they've developed sufficient internal expertise to manage climate risks independently. CIBC's statement reflected this view: "Having made significant progress alongside our clients in these areas, we are now well positioned to further this work outside of the formal structure of the NZBA".
3. Questions About Effectiveness Data suggests that formal alliance membership may not drive climate action. Three European banks halved their fossil fuel financing between 2020 and 2023, but none of these policies or changes resulted directly from their NZBA membership.

Implications for Canadian Banking

Risk Management Continues Despite leaving the NZBA, Canadian banks still face climate-related financial risks:

• Physical risks from extreme weather events
• Transition risks as economies shift toward lower emissions
• Regulatory risks as governments implement climate policies

Banks will need to maintain robust climate risk assessment capabilities regardless of alliance membership.

Flexibility in Approach Without NZBA commitments, Canadian banks gain flexibility to:

• Design climate strategies aligned with their specific business models
• Respond to local regulatory requirements without conflicting international commitments
• Balance stakeholder expectations with business realities

Competitive Considerations As European banks maintain their NZBA membership while North American banks exit, we may see diverging approaches to climate finance. Canadian banks will need to monitor whether this creates competitive advantages or disadvantages in:

• Access to green finance opportunities
• Relationships with climate-conscious clients
• Talent acquisition among sustainability-focused professionals

What's Next: The Framework Model

The proposed transformation to a "framework initiative" suggests the NZBA may continue as a resource provider rather than a membership organization. This could offer:

• Technical guidance on climate risk assessment
• Best practices for net-zero transition planning
• Tools and methodologies without binding commitments

This model might actually prove more practical, allowing banks to use resources selectively while maintaining autonomy over their climate strategies.

Looking Forward

The NZBA's evolution reflects broader tensions in sustainable finance:

• Balancing global coordination with local political realities
• Managing stakeholder expectations while maintaining fiduciary duties
• Addressing long-term climate risks amid short-term pressures

For Canadian financial executives, the key takeaway is that climate risk management remains critical regardless of international alliance structures. The question isn't whether to address climate risks, but how to do so effectively while navigating complex political and business environments.

The September vote results will clarify the NZBA's future direction. Meanwhile, Canadian banks must continue developing climate capabilities while maintaining flexibility to adapt to evolving conditions.