The six largest US banks - Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo - have exited the Net Zero Banking Alliance, a voluntary initiative launched by the United Nations Environment Programme Finance Initiative in 2021. The alliance aims to achieve net-zero greenhouse gas emissions across its members' operations and lending and investment portfolios by 2050.

Conservative lawmakers and regulators had criticized the alliance, arguing that it was beholden to a 'woke climate agenda' and violated antitrust laws. Nineteen Republican attorneys general had issued 'civil investigative demands' to the banks in 2022, demanding information about their environmental, social, and corporate governance (ESG) practices.

Environmental advocates say the banks' exit from the alliance is a setback for the banking sector's climate progress, but also highlights the need for stricter climate laws and regulations. 'There are other levers that we can use to hold banks accountable,' said Allison Fajans-Turner, a senior energy finance campaigner at the Rainforest Action Network.

Call for Stricter Climate Laws

Advocates argue that governments have the authority to ensure that banks live up to their stated climate promises and to push them to do more. States like California have already passed laws requiring large businesses, including banks, to report their greenhouse gas emissions annually and disclose their climate-related financial risks biannually.

Legislators are also pushing for stricter regulations on the banking sector, including requirements for banks to publish clear decarbonization plans and to reduce their financing of fossil fuels. 'We need to defeat the pushback to make sure that legislation is going to be able to survive,' said Patrick McCully, a senior energy transition analyst at Reclaim Finance.

The European Union has already begun to use corporate sustainability directives to require financial institutions to adopt transition plans for climate change mitigation. However, growing opposition from right-wing governments in Europe may pose a challenge to these efforts.