The recent exit of Canadian and U.S. banks from the Net-Zero Banking Alliance (NZBA) initiative highlights growing tensions between climate commitments and political pressures. With banks like TD, BMO, and Scotiabank prioritizing independent strategies, the financial sector faces mounting challenges in balancing sustainability goals with fossil fuel financing.
The NZBA initiative was established in 2021 to align global financial institutions with the Paris Agreement’s goals. With over 100 members representing nearly 40% of global banking assets, the alliance focused on reducing financed emissions, encouraging green investments, and increasing transparency.
These measures were designed to mobilize the financial sector’s efforts toward a low-carbon economy. Sustainable financing is critical in this journey by enabling investments in renewable energy, carbon capture technologies, and reforestation projects.
However, the recent departure of major banks from the NZBA threatens to undermine collective action, raising questions about the alliance’s future and the overall momentum toward net zero.
Balancing Green Goals and Fossil Fuel Financing: The Sustainability Dilemma
In a significant blow to the NZBA, five major Canadian banks—TD Bank, Bank of Montreal (BMO), National Bank of Canada, Canadian Imperial Bank of Commerce (CIBC), and Scotiabank—announced their exit. This exodus highlights the growing tension between political realities and sustainability commitments.
Despite leaving the alliance, these major banks reiterated their dedication to decarbonization and achieving net zero by 2050. Let’s get to know each of the bank’s climate goals and strategies.
TD Bank
TD Bank said it would continue working independently on its climate strategy, leveraging its expertise to support sustainable investments. The bank has already committed over $100 billion in sustainable finance initiatives and aims to achieve net zero emissions in its operations by 2030.
However, critics argue that TD’s significant funding for oil sands and fossil fuel projects undermines its climate claims. Between 2020 and 2023, TD Bank ranked among the top global financiers of fossil fuel expansion, allocating billions to high-emission projects. This dual approach raises questions about the bank’s sincerity in addressing climate change.
Bank of Montreal
BMO emphasized its ongoing efforts to support clients in transitioning to a low-carbon economy. The bank’s Climate Institute and its $330 billion sustainable finance goal by 2025 underscore its commitment to reducing emissions.
The bank has also been active in funding renewable energy projects, including large-scale wind and solar developments across North America. However, like its peers, BMO faces scrutiny for its continued investments in high-carbon industries, which critics argue contradict its net zero ambitions.
Canadian Imperial Bank of Commerce (CIBC)
CIBC highlighted its progress in climate risk management and financing renewable energy projects. In 2023 alone, the bank allocated $45 billion to sustainability-linked loans and green bonds.
CIBC’s partnerships with green technology firms have further bolstered its image as a climate-conscious institution. Nonetheless, its position as a major lender to oil and gas companies casts doubt on its overall impact on reducing emissions.
National Bank of Canada
NBC stated it remains focused on aligning its financing activities with sustainability goals while meeting evolving regulatory standards. The bank has supported projects that advance clean energy and sustainable infrastructure. It has also invested in carbon offset programs to mitigate the environmental impact of its loan portfolio and reach the net zero goal, with the following interim targets.
Scotiabank
Scotiabank reaffirmed its dedication to financing decarbonization efforts, particularly in the oil and gas sector. It recently launched the Scotia Climate Change Transition Fund to provide capital for businesses adopting greener practices.
The fund focuses on sectors like renewable energy, green manufacturing, and sustainable agriculture. Remarking on its exit, Scotiabank spokesperson Katie Raskina stated in an email:
“…[We] will continue to finance the transition and support our clients in implementing their sustainability strategies — this is the most important role that we can play.”
Despite these efforts, Canadian banks remain some of the largest financiers of fossil fuels. Data from 2024 shows TD Bank, RBC, BMO, and CIBC among the top 10 global financiers of oil, gas, and coal projects, which poses challenges to their sustainability narratives.
Royal Bank of Canada (RBC) is now the only major Canadian bank still in the alliance, although its leadership has hinted at reconsidering membership. CEO Dave McKay recently stated that exiting NZBA would not diminish the bank’s climate commitments.
RBC has allocated over $500 billion toward sustainable finance and pledged to achieve net zero emissions by 2050. However, RBC’s role as a top lender to the fossil fuel industry has drawn widespread criticism, making it a focal point for climate activists.
The U.S. Banks’ Departure and a Growing Trend
The NZAM also saw a wave of exits from U.S. banking giants in late 2023 and early 2024. Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and Wells Fargo are among the notable names that departed the alliance.
These exits coincide with Donald Trump’s return to the presidency and intensified political opposition to climate finance. Republican-led states, such as Texas, have filed lawsuits against banks and asset managers, accusing them of prioritizing climate goals over economic interests.
While these banks have distanced themselves from the NZBA, they continue to pursue independent sustainability strategies. For example, Morgan Stanley and Citigroup have committed to achieving net zero emissions by 2050, with interim targets for 2030.
However, their withdrawal underscores a broader challenge: balancing climate ambitions with political and financial pressures.
What Does This Mean for Global Climate Financing?
The departures from NZBA highlight a troubling trend that may hinder global progress toward net zero. These exits risk fragmenting efforts within the financial sector, which could delay the mobilization of the trillions of dollars required to combat climate change.
As shown in the chart, the world needs $7.4 trillion annually through 2030 under the 1.5°C net-zero scenario. The banking sector has a critical role in ensuring that this amount reaches the right climate projects and initiatives.
Unified alliances like NZBA provide a framework for accountability, collaboration, and standardization, which are essential for large-scale impact. However, political resistance, legal challenges, and the perception of overregulation have created significant barriers.
The exits also send mixed signals to stakeholders, including investors and policymakers, about the financial sector’s commitment to sustainability. Yet, the growing demand for green bonds, renewable energy financing, and decarbonization technologies presents opportunities for banks to demonstrate leadership.
By prioritizing transparency, innovation, and partnerships, financial institutions can continue to play a pivotal role in driving the global transition to a sustainable future.
