Starting with Goldman Sachs in early December, a number of banks have now left the Net-Zero Banking Alliance (NZBA),[1]
namely Morgan Stanley, Bank of America, Wells Fargo, Citigroup and JPMorgan. Irrespective of one’s views on the effectiveness of this alliance, one can argue it represents a public step back from net-zero commitments.
How do we analyse questions around patterns in terms of who has exited and who has not? How do we assess claims that exiting banks will stick to net-zero plans? And will there be more exits? AFII’s The Box can help.
The Box is a counterparty selection system for investors that uses league tables to display the syndication fees banks have generated from fossil fuel financing compared to green bond issuances. By ranking the proportion of fees from each, we show how dependent each bank is on fossil fuel revenues
Overlaying NZBA membership and the exodus provides some insights; see Figure 1 (below and above, large banks) and Figure 2 (below, intermediate banks) below.
First, is there a pattern to NZBA exits?
Large banks with higher dependency on fossil fuel revenues (Figure 1) are more likely to have exited. Among the intermediate banks with higher dependency on fossil fuel (Figure 2) revenues, there have been no exits so far, but several banks did not join in the first place.
Across both categories, Canadian banks are notable, having high net fossil revenues but remain members. At the time of writing, there have been some indications that RBC and BMO will pull out of NZBA.[2]
Second, what is the relationship between syndication fees and the NZBA?
NZBA commitments focus only on direct lending and investment portfolios, not syndication fees that are raised by banks when supporting capital market access for their clients. These risk falling out of sight but are key to the bottom line.
It is interesting therefore to see the correlation between these rankings and NZBA membership despite syndication fees not being part of the alliance’s objectives. The advantage to the fee approach is that the league tables can be provided in real-time and are reflective of market activities rather than self-reporting.
Lastly, what are potential points of engagement for investors and issuers?
The Box supports investors and issuers to use their counterparty selection power to engage banks that are better aligned to the climate transition. It is already common practice to give preferential treatment to counterparties that are well aligned with investors’ and issuers’ own interests and strategies. The current news flow reinforces the logic of that. Deselecting a low-ranking bank as a counterparty should come with no, or minimal, cost to the investor or issuer, but provide an important feedback effect to the bank in question.
Given the news-flow around NZBA, this is a good opportunity for investors to confirm counterparties’ alignment to net-zero plans. Data such as that provided by The Box (which is updated quarterly) can be a good starting point for conducting due diligence on such claims, and for following up progression over time.
Figure 1 – Large banks that have continued higher proportion of fees from fossil deals are more likely to have left NZBA
Figure 2 – Intermediate banks with higher dependency on fossil fuel syndication fees are less likely to be members of NZBA
[1] “Exodus by Wall Street banks from climate group worries advocates”, Reuters, 6 Jan 2025. “JPMorgan Quits Climate Finance Group, Following Citi, BofA”
[2] See “RBC, BMO Signal They May Follow US Banks Out of Climate Club”, Bloomberg, 8 Jan 2025. BMO pulling out is not surprising, given the bank’s turn on coal mining in 2024, see “The Montreal-West Virginia-Frankfurt price stability paradox”, AFII, 5 Jun 2024.
