The “massive reallocation of financial flows toward solutions” called for by climate activists has been dealt a blow by the failure of the Net Zero Banking Alliance (NZBA). The group’s shutdown is being presented by critics as conclusive evidence that such a shift in capital will never happen without forceful government regulation.
The NZBA was, in theory, a vehicle for this reallocation. It encouraged its nearly 150 member banks to decarbonize their portfolios, which would mean shifting trillions of dollars away from fossil fuels and toward clean energy. However, the alliance’s voluntary nature made this goal aspirational rather than achievable.
The alliance’s inability to drive this change was laid bare by political events. When Donald Trump was re-elected, the immense political and financial power of the fossil fuel industry was reasserted. The largest US banks, which are also the largest financiers of fossil fuels, quickly abandoned the NZBA.
This retreat by firms like JPMorgan Chase, followed by international banks like Barclays, demonstrates that when a choice must be made, the status quo of fossil fuel financing often wins. The voluntary alliance lacked the power to force a different outcome.
This is why Lucie Pinson of Reclaim Finance argues that this “massive reallocation… cannot happen without intervention from policymakers and regulators.” The NZBA’s collapse is now the prime exhibit in her case. The hope that banks would willingly lead this historic shift in capital has faded, replaced by a hardened conviction that they must be compelled to do so by law.