Unpicking the fallout of GFANZ’s restructuring

The new year began with a bang. Some of the largest in the US, including Citi, Bank of America, Goldman Sachs, Wells Fargo, and JP Morgan, announced in quick succession their departure from the Net Zero Banking Alliance (NZBA).

Their exits, announced just weeks before Trump potentially re-enters the White House, are eerily reminiscent of high-profile departures from the Net Zero Insurance Alliance last year and a series of asset manager exits from Climate Action 100+.

GFANZ responded by drastically overhauling its structure. Financial organisations will now no longer be required to sign up to its membership criteria. Instead, the umbrella body pledges to increasingly focus on facilitating climate finance.

High expectations

The news of banks leaving is painful for the alliance, it affects some of the founding members of the NZBA and leaves the umbrella for UN-convened net zero alliances in poor shape. The timing couldn’t have been more awkward for co-founder Mark Carney, who is reportedly considering replacing Justin Trudeau as Canadian Prime Minister.

Since its inception in 2021, the initiative has struggled with an inherent contradiction: attempting to draw in as many financial institutions as possible while upholding minimum standards for membership to ensure the credibility of the commitment.

When GFANZ was first established during COP26 in Glasgow, membership came with high expectations. To join the alliance, firms had to be accredited by the UN’s Race to Zero campaign, use science-based guidelines to reach net zero emissions, cover all emission scopes, set 2030 interim targets, and commit to transparent reporting and accounting standards.

At the time, civil society organisations warned that including some of the biggest financiers of the fossil fuel industry would bring challenges. In October 2021, over 90 civil society organisations wrote to Mark Carney, urging him not to include major fossil fuel financiers in the network.

“There was a real risk here that the principles and the ideals of GFANZ were going to be watered down. And unfortunately, that's come true years later, where you've had, over time, a weakening of criteria,” recalls Richard Brooks, climate finance director at the Canadian organisation Stand.earth, one of the signatories of the letter.

Mixed results

Indeed, according to the annual Banking on Climate Chaos report, JP Morgan Chase, Citigroup, and Bank of America have been the three biggest financiers of the fossil fuel industry from 2016 to 2024. Together, these three banks have collectively lent more than a trillion dollars to the fossil fuel industry. Notably, they are also three prominent members of the NZBA that recently announced their departure.

A study published in Nature in September 2024 shows no overall decline in lending to the fossil fuel industry, though the results are mixed. Some European banks have reduced their exposure, while Japanese and Canadian banks have increased lending to the fossil fuel sector. US banks continue to play a significant role in deal syndication.

Meanwhile, NZBA’s latest progress report highlights some achievements in setting targets. Members have agreed to adopt updated Guidelines for Climate Target Setting for Banks (launched in April 2024), which include expectations that banks reduce the carbon footprint of their lending activities. However, the report includes very little detail on actually reducing lending activities to the fossil fuel industry.

A fundamental overhaul

This inherent contradiction—balancing inclusivity with credibility—has increasingly become untenable, as a growing number of financial organisations opt to leave rather than commit.

In response, GFANZ announced a fundamental overhaul on New Year’s Eve. Its leadership, including Michael Bloomberg, Mark Carney, and Mary Shapiro, revealed plans to lower the threshold for membership and focus instead on attracting capital to the energy transition.

In practice, this means financial institutions no longer need to be members of specific alliances to be involved with GFANZ. Instead, the organisation will shift its emphasis from setting standards and transition plans towards attracting capital for clean energy.

This compromise allows banks, such as those exiting the NZBA, to continue reaping the green credentials of a GFANZ membership. For example, Bank of America CEO Brian Moynihan and Citi CEO Jane Fraser will remain part of the GFANZ Principals Group, despite their organisations leaving the NZBA.

Will things change?

The big question is whether this change in GFANZ’s approach will boost or weaken climate action. GFANZ’s leadership claims that very little will change. The organisation justified its decision by stating it has “achieved its initial goal of developing the building blocks of a financial system capable of financing the transition to net zero.” It also points to the widespread adoption of International Sustainability Standards Board (ISSB) reporting standards and the increasing prevalence of transition plans among financial institutions.

The underlying alliances, including the NZBA, insist that nothing will change. A source familiar with the matter told Net Zero Investor that the NZBA still expects its members to comply with its climate target-setting guidelines.

However, Richard Brooks remains highly critical of this dual approach. “It’s a real abdication of leadership in order to make the tent as big as possible. But as a result, the ambition level and the effectiveness of the body is dramatically reduced,” he argues.

“It would be better to get a lot of action from a smaller number of banks than very little action by a larger group,” he adds.

Brooks warns that allowing banks to remain part of GFANZ without committing to meaningful climate action increases the risk of greenwashing: “The benefit that they have remains. Banks are able to say, ‘We are part of an alliance that is working towards Net Zero. Do not worry about us… That’s pure greenwashing avoidance. It’s an avoidance strategy to avoid regulation.”

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