How will banks collaborate on the financial industry’s net zero progress? Do they even need to work together? Can the same financial institutions that enable fossil fuels help to usher in a low-carbon global economy?

Those questions hang in the air as the members of the Net Zero Banking Alliance (NZBA) are expected to announce a vote any day now over whether to remain a committed club with formal obligations or something looser, such as a guidance-based framework.

The alliance has been on hold since Aug. 27 pending a decision pegged for September. It had already rejected binding requirements for members in April, following a rapid exodus of 20 major banks. The U.S. anchor members that have fled since December, including Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan Chase, are also heavy fossil fuel financiers.

Each exit sparked outrage from activist groups that urged banks to halt oil and gas investments immediately. Other experts warned that the financial sector’s net zero targets would enter a “zombie” state, neither alive nor dead but ultimately aimless.

Yet most of the NZBA’s members, about 120, have remained despite an ESG backlash and threats by Republican lawmakers. Meanwhile, individual banks are neither dramatically ditching their climate goals or firing sustainability teams, despite some walkbacks and surface title changes.

“The infrastructure that has been built up over the last couple of years has been intact,” said Brian O’Hanlon, managing director of climate finance at the Rocky Mountain Institute in Washington, D.C. “And that, to me, is a very interesting sign.”

No ‘climate heroes’

But whatever the alliance decides, O’Hanlon and other climate transition experts maintain that it’s the wrong thing to focus on. The group had been useful as a scaling mechanism that elevated best practices, he said, but the real change comes where banks deploy capital.

“I don’t think we ever should have looked at banks as climate heroes, but they do sit on the edge of the greatest transformations in the economy,” O’Hanlon said. “We’re in the energy transition right now where we are asking banks to pan for gold when it comes to the energy structures and the deals of the future.”

The issue can be more creative, he added: “Let’s get into the cost. Let’s look into the deals. Where’s the innovation coming into place here?”

O’Hanlon’s stance aligns with that of Saskia Straub, climate policy analyst with New Climate Institute. The Cologne, Germany, group has found that the voluntary targets of large U.N.-backed financial alliances have not meaningfully advanced decarbonization in finance. 

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