Banks should be investing in climate change – the end of the NZBA

A period of slow weakening 

In April 2025, members voted to drop the mandatory requirement for aligning with a 1.5⁰C-consistent pathway – as required by the Paris Agreement. Instead members moved towards allowing a ‘wider range of net-zero pathways’. 

Despite the change, exits followed. 

In October 2025, the remaining members agreed to transform the alliance from a membership-based organisation into a framework initiative. Formal operations ceased immediately. 

Essentially, the formal role of the NZBA and its structure as a coalition of banks no longer exists. Whilst resources such as its ‘Guidance for Climate Target Setting for Banks are still publicly available, the accountability, membership , and collective obligations are ended. 

Why did the NZBA collapse?

There were a number of factors including: 

1. Political pressure, especially in the United States

   1. The return of a more climate-skeptical administration increased scrutiny of ESG, and net-zero commitments. Banks became concerned about politics and the risk of backlash, even legal risk from government and regulators, including antitrust or accusations of collusion or overreach. 

   2. Some US state governments have pushed anti-ESG policies.

2. Loss of credibility and utility as members left

   1. As high-profile banks with large portfolios left, NZBA lost critical mass and influence. Banks that remained claimed that without many of the larger banks, the alliance was less able to set meaningful standards, or to influence banks globally. 

   2. Some banks claimed the alliance was no longer ‘fit for purpose’.

3. Dilution of ambition

   1. Dropping the requirement to align with 1.5⁰C was seen by many as a major weakening of the alliance’s goals. 

   2. Triodos Bank, amongst others, left explicitly because of the dilution.

4. Regulatory, legal and reputational risks

   1. Banks became worried about potential litigation connected to net-zero promises, accusations that they were not delivering, and possible violations of laws if they appeared to collude or otherwise constrain competition. 

   2. If commitments are made, but actions lag drastically, or if standards are weakened, this could lead to criticism from civil society or investors.

5. Operational and economic challenges

   1. It is undoubtedly difficult to align large, global banks’ portfolios with 1.5⁰C pathways, especially when many clients are in fossil-fuel intensive sectors, or when regulatory or economic conditions differ in each country 

   2. Some banks claimed they had developed their own internal climate strategies, feeling that formal membership was, as a result, less necessary. 

The disbanding of the NZBA has several potential consequences, some immediate, others longer term. These include: 

1. Weaker collective pressure and standards

   1. Without NZBA it is likely that less coordinated pressure on banks to set or keep strict climate targets, especially 1.5⁰C alignment, will exist. 

   2. Standardised frameworks (for reporting, disclosure of financed emissions, transition plans) may become more fragmented. 

   3. Differences across jurisdictions and business models may widen, resulting in less comparability.

2. Potential to backslide

   1. Some of the banks that have left, claim they remain committed to net zero in various ways. However, leaving a formal group removes public oversight, bringing a potential risk of weaker or slower progress. 

   2. The change in rules (allowing non-1.5⁰C pathways) already indicates a softening. Softening ambition in one large coalition may encourage others to do the same.

3. Reduced credibility and stakeholder trust

   1. For investors, civil society and customers, seeing major banks leave, and alliances fold, can reduce trust in climate commitments 

   2. The loss of the NZBA could undermine the broader ecosystem of voluntary climate commitments if they are seen as unstable or vulnerable to political shifts.

4. Regulatory vacuum or shift towards regulation
   1. Voluntary initiatives are now shown to be fragile. This could push governments and regulators to impose mandatory rules rather than relying on voluntary coalitions. Although likely to deliver a pro-climate outcome it is likely to be slower to implement and more contested.
5. Effect on climate finance flows
   1. Banks may feel less pressured to direct capital away from high emissions sectors, or less transparent about their financed emissions. This could in turn slow the mobilisation of finance towards clean transition, already an enormous challenge in its own right.
6. Geopolitical and jurisdictional divergence
   1. Banks operating in jurisdictions with stronger regulatory pressures (the EU for example, and parts of Asia), may continue strong climate alignment, whilst other jurisdictions with resistance to ESG and net zero may retreat further. This divergence could make global cooperation more difficult, and climate goals more difficult o meet consistently across countries. 

When political winds shift, regulatory risk arises, or major members depart, the capacity and credibility of such initiatives can erode quickly. 

Of course, this does not mean that all banks will abandon climate commitments, but the incentive to do so is now a threat and this critically important sector to climate mitigation could lose momentum as a result. This threatens slower progress, and more fragmentation at a time when all the scientific evidence shows we can least afford to be easing away from hard climate change and net zero commitments. This is one investment all banks should be treating as critical.