Big Banks and Asset Managers Abandon the Goal of Net Zero Carbon Emissions
January 22, 2025
The titans of US finance were not as visibly compliant as the leaders of Big Tech on Donald Trump’s inauguration day. But Wall Street has signaled its own form of anticipatory obedience.
On January 7, the world’s largest asset manager, BlackRock, withdrew from the Net Zero Asset Managers initiative, while the Western world’s largest bank, JP Morgan, withdrew from the Net Zero Banking Alliance. In the prior month, the banking alliance had lost the next-five-largest US banks: Bank of America, Citi, Wells Fargo, Goldman Sachs, and Morgan Stanley. Perhaps to prevent another such run, the asset managers initiative announced on January 13 that it would suspend activities and review the scope of its initiative “in the new global context.”
The Net Zero Bankers Alliance and Asset Managers initiative were the most prominent groups operating under the umbrella of the Glasgow Financial Alliance for Net Zero, formed in 2021 to promote net zero carbon emissions. That titular goal seemingly went out the window on New Year’s Eve, when the Glasgow alliance renounced its role as an umbrella group and declared a new tolerance for carbon finance so long as banks also fund renewable energy. The former tentpole for the net zero movement might now be known more aptly as the Glasgow Financial Alliance for All-of-the-Above Energy. Whether the asset managers initiative charts a similar path in the Trump era remains to be seen.
What has inspired US institutions to drop their net zero goals – and will it make any difference? BlackRock has answered both questions with refreshing candor.
To explain its withdrawal from the Net Zero Asset Managers initiative (NZAMi), BlackRock wrote in a letter to clients that its membership “subjected us to legal inquiries from various public officials.” Indeed, its withdrawal fits a long pattern of US financial institutions capitulating to Republican anti-ESG pressure.
Vanguard set the trend for rescinding a net zero pledge in late 2022, only a week after red state attorneys general cited its NZAMi membership as grounds for opposing a regulatory petition by Vanguard to raise its national utility holdings. The Kentucky AG promptly declared victory.
A 2023-24 investigation by the Republican-led House Judiciary Committee characterized the Glasgow Financial Alliance groups, and another climate pledge group called Climate 100+, as a “cartel” that colludes to encourage climate reporting and emissions reductions. After State Street and JP Morgan withdrew from Climate Action 100+ in early 2024, and BlackRock downgraded its membership, the GOP members of the House Judiciary Committee claimed credit.
On Nov. 27, eleven red state AGs lodged a federal antitrust complaint on a similar theory against the Big Three asset managers. In the words of Texas AG Ken Paxton, it alleges that “BlackRock, Vanguard, and State Street formed a cartel to rig the coal market, artificially reduce the energy supply and raise prices,” through their membership in groups like NZAMi.
Playing tag team, the House Judiciary Committee’s Republican leadership sent a Dec. 20 letter to all US asset managers belonging to NZAMi, demanding information by Jan. 10 regarding their involvement with the group that the congressmen called “a woke ESG cartel.” Noting that BlackRock’s withdrawal from NZAMi came three days before his deadline to produce information, House Judiciary Chair Jim Jordan again claimed credit, and urged all its US peers to “abandon the climate cartel”.
BlackRock’s client letter perhaps revealed more than intended when it admitted that its “participation in NZAMi didn’t impact the way we managed client portfolios. Therefore, our departure doesn’t change the way … we manage their portfolios.”
If cynics are correct that a net zero pledge is merely an exercise in virtue signaling, then maybe rescinding a net zero pledge is nothing but “vice signaling.” There is considerable support for the cynical view.
A recent academic paper described “the first large-scale causal evaluation of the impact of banks’ net zero commitments on their lending and on the climate impact of borrowing firms.” Damning across the board, it finds that members of the Net Zero Banking Alliance (NZBA) do not divest from polluting sectors and do not increase funding for renewable power. At the same time, firms that borrow from NZBA banks are not likelier to set climate targets, nor to reduce their carbon emissions. The entire enterprise turns out to have been a sham.
A study of 2023 proxy voting by large asset managers, conducted by the nonprofit ShareAction, found that NZAMi membership was only weakly predictive of a better voting record on climate proposals – and with many glaring exceptions. For instance, BlackRock voted for only 10% of 2023 climate resolutions at firms where it had holdings, while Capital Group and T. Rowe Price (which are still NZAMi members) voted for even fewer than 10%.
What is strongly predictive of hypocrisy in climate finance is a US headquarters. A recent report by green nonprofits found that the four leading US commercial banks lead the world in financing fossil fuels (albeit with Japan’s MUFG Bank sneaking in at number four, ahead of Wells Fargo). Collectively, the top four US banks have poured over $1.5 trillion into fossil fuels since the Paris climate pact. By contrast, no EU bank is among the dozen worst offenders. More broadly, a recent Sierra Club report concluded that all six top US banks significantly lag their international counterparts on climate policies.
Similarly, in ShareAction’s 2023 scorecard of voting by large asset managers on E&S shareholder proposals, American money managers comprised 15 of the worst 25 E&S performers, while the top 25 are based in Europe.
At least in the US, voluntary pledges can’t be relied on to enforce carbon fuel cuts. That leaves hard law – and for now hard law outside of Washington, DC – as the only realistic means to enforce a genuine drawdown of fossil fuel production.
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