The banking industry’s commitment to fighting climate change appears to be wavering as several major financial institutions quietly step back from their carbon reduction pledges. This retreat comes amid mounting pressure from business clients, political headwinds, and concerns about profitability in an increasingly competitive global financial landscape.
JPMorgan Chase, the largest U.S. bank by assets, recently announced it would no longer require clients to submit detailed emissions data, citing “practical challenges” in implementation. This shift represents a notable departure from the bank’s previous stance when CEO Jamie Dimon had positioned the firm as a leader in sustainable finance.
The retreat isn’t isolated to American shores. According to data from the Glasgow Financial Alliance for Net Zero (GFANZ), membership from banking institutions has declined 14% since its peak in 2022. The organization, which launched with great fanfare at COP26, has seen its influence diminish as economic realities collide with climate ambitions.
“Banks are caught between competing pressures,” explains Sarah Raskin, former Federal Reserve governor and Treasury official, in a recent interview with the Financial Times. “On one hand, they face legitimate long-term risks from climate change. On the other, they’re dealing with immediate business concerns and political backlash from certain quarters.”
The political dimension cannot be overlooked. In states like Texas, West Virginia, and Florida, legislation restricting business with financial institutions deemed hostile to fossil fuel industries has created tangible business consequences. A Bloomberg analysis estimates these restrictions have cost major banks approximately $700 million in underwriting fees over the past two years.
This political pressure coincides with disappointing returns from ESG-focused investment products. According to Morningstar data, ESG funds have underperformed their conventional counterparts by an average of 2.1% annually over the past three years. These numbers make it increasingly difficult for banks to justify climate commitments on purely financial grounds.
The retreat from climate pledges also reflects practical implementation challenges. Many banks joined initiatives like the Net-Zero Banking Alliance (NZBA) without fully understanding the operational implications. Measuring financed emissions—the carbon output of activities funded through loans and investments—has proven exceptionally difficult in practice.
“The data quality issues are substantial,” notes Mark Carney, former Bank of England governor who helped establish GFANZ. “We’re asking banks to measure something that their clients often don’t track themselves. The infrastructure for climate accounting is still developing.”
For energy-intensive industries, the banks’ retreat offers a reprieve. The American Petroleum Institute reports that financing costs for oil and gas projects decreased by approximately 60 basis points in the second quarter of 2023 compared to the previous year, representing the first such decline since 2018.
The Federal Reserve Bank of St. Louis recently published research suggesting that stringent climate financing requirements could reduce GDP growth by 0.4% annually if implemented too rapidly. This finding has given ammunition to those arguing for a more measured approach to climate finance.
However, the banking retreat doesn’t mean climate considerations have disappeared entirely from financial decision-making. Instead, many institutions are shifting toward a more nuanced, client-by-client approach rather than blanket policies.
“We’re moving away from broad exclusionary strategies toward engagement,” explains Brian Moynihan, CEO of Bank of America, at a recent industry conference. “Our focus is helping clients transition at a pace that makes economic sense while managing climate risk appropriately.”
This approach aligns with the “finance-first” perspective gaining traction in boardrooms. Under this framework, climate considerations remain relevant but subordinate to traditional financial metrics and client relationships.
Environmental advocates view these developments with alarm. The Sierra Club‘s financial advocacy program director Ben Cushing warns that “banks are failing the climate test when it matters most,” noting that current financing patterns remain incompatible with limiting global warming to 1.5 degrees Celsius.
The Securities and Exchange Commission‘s delayed climate disclosure rules have further complicated matters. Originally expected to provide a standardized framework for emissions reporting, the final rules may be substantially weakened from initial proposals, according to sources familiar with the deliberations.
Despite the general retreat, some European banks maintain stronger climate commitments. BNP Paribas and ING have reaffirmed their emissions reduction targets, suggesting a growing transatlantic divide in climate finance approaches.
For investors trying to navigate this shifting landscape, the message is increasingly nuanced. Climate risks haven’t disappeared, but the financial industry’s approach to addressing them is becoming more individualized and less coordinated than climate advocates had hoped.
As banks recalibrate their climate strategies, the coming year will likely reveal whether this retreat represents a temporary adjustment or a more fundamental reassessment of the financial industry’s role in addressing climate change. Either way, the era of ambitious banking climate pledges appears to be giving way to a more cautious, business-centered approach that prioritizes client relationships and traditional financial metrics over global climate targets.
