The collapse of the Net Zero Banking Alliance (NZBA) is more than just the failure of one initiative; it’s a systemic failure that highlights the massive gap between the financial industry’s current practices and what is needed to manage the systemic risk of climate change. The global group has shut down, revealing the inadequacy of voluntary approaches.
Climate change poses a systemic risk to the entire global financial system. The NZBA was created, in theory, to help manage this risk by encouraging an orderly, bank-led transition away from carbon-intensive assets. Its failure demonstrates that the industry lacks the collective will to address this threat on its own.
The trigger for the failure was a political shock—the re-election of Donald Trump—that the voluntary system was not resilient enough to withstand. The fear of “anti-woke” attacks caused the six largest US banks to prioritize short-term political risk over long-term systemic climate risk, leading them to exit the alliance.
This exposed the system’s weakness. Without any enforcement mechanism, the departure of key players like JPMorgan Chase, HSBC, and Barclays led to a total collapse. The very institutions that are most exposed to systemic climate risk were the first to abandon the primary collaborative tool designed to mitigate it.
This systemic failure now demands a systemic solution. Critics, like Lucie Pinson of Reclaim Finance, argue that the “action is essential” from policymakers and regulators to limit climate change and the “systemic risks it entails.” The NZBA’s collapse, they contend, is the final piece of evidence needed to prove that self-regulation has failed and that a government-led, regulatory approach is the only way to fill the gap.