In the lead-up to Inauguration Day, all six of the United States’ largest banks backed away from a United Nations-sponsored climate initiative amid attacks from conservative lawmakers and regulators.  

Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo left the Net Zero Banking Alliance between December and January in what was perceived to be a concession to right-wing criticism of so-called ESG — decision-making driven by environmental, social, and corporate governance considerations. Nineteen Republican attorneys general had issued “civil investigative demands” to those banks in 2022, demanding that they turn over information about their ESG practices. They argued that the alliance was beholden to “the woke climate agenda” and that it violated antitrust laws.

While the banks’ exodus from the alliance certainly looks like a setback for the banking sector’s climate progress, environmental advocates say it is a reminder that voluntary initiatives have never been sufficient to drive the sector’s decarbonization.

“There are other levers that we can use to hold banks accountable,” said Allison Fajans-Turner, a senior energy finance campaigner at the nonprofit Rainforest Action Network, which publishes an annual report on how much money banks commit to fossil fuel projects. In light of the Trump administration’s pro-oil and gas agenda, she said that over the next four years activists and policymakers will have to keep the pressure on and, critically, push for stricter legislation at the state and international levels.

“It is quite clear that major U.S. banks will not police themselves,” she added.

The Net Zero Banking Alliance, or NZBA, launched in 2021 under the aegis of the United Nations Environment Programme Finance Initiative and has about 140 members after the six American banks — and four Canadian ones — exited. The alliance asks member banks to commit to achieving net-zero greenhouse emissions across their operations and “lending and investment portfolios” by 2050, and to set intermediary emissions reduction targets for 2030 and every five years thereafter. It also asks banks to disclose their annual emissions, and sets some recommendations to limit the application of carbon offsets toward banks’ climate goals.

However, much like the Paris Agreement to limit global warming, the NZBA relies on voluntary participation and compliance, and does not have any enforcement authority. It’s been criticized for not asking enough from its members, which are allowed to participate even if they continue underwriting the expansion of oil and gas infrastructure. U.N. proposals that would tighten its requirements — particularly around financing of fossil fuels — faced strong opposition from recently departed banks like JP Morgan and Bank of America.

Even some of the NZBA banks themselves have acknowledged the alliance’s limitations in the face of government inaction. In 2023, Amalgamated Bank’s chief sustainability officer, Ivan Frishberg, told the business publication Responsible Investor that NZBA signatories were “being left alone at the altar” as governments around the world failed to legislate a transition away from fossil fuels. GLS Bank, based in Germany, quit the alliance that same year in protest of other NZBA members’ support for fossil fuel projects in Africa.

Wells Fargo declined to comment on the rationale behind its departure from the NZBA. Goldman Sachs said it had made “significant progress” on its net-zero goals but did not explain why it left the alliance. The other four recently departed banks did not respond to inquiries from Grist. 

Unlike voluntary initiatives, governments have the authority to ensure that banks live up to their stated climate promises and to push them to do more. At an event in New York City last November — notably, even before the NZBA shakeup — the former deputy secretary to the U.S. Treasury, Sarah Bloom Raskin, suggested that states should take on this role.

States “have a unique opportunity to lead,” she said, noting the incoming presidential administration’s hostility to climate action. At the time, California had already passed two laws requiring large businesses, including banks, to report their greenhouse gas emissions annually and disclose their climate-related financial risks biannually. Those laws recently survived a legal challenge from the U.S. Chamber of Commerce, and New York state lawmakers introduced similar bills in January. A Democratic state representative in Illinois introduced a disclosure bill last month. 

Danielle Fugere, president and chief counsel for the shareholder advocacy nonprofit As You Sow, said disclosure is a prerequisite for holding banks to their climate goals. ”We want to understand what it is they’re doing,” she said. Laws like California’s bring to light the financial instability wrought by fossil fuel-driven climate change and — in theory, at least — discourage financing that would exacerbate it.

Of course, merely requiring that banks disclose their emissions and climate-related risks isn’t likely to prevent the worst impacts of global warming. According to a landmark 2021 report from the International Energy Agency, no new oil, gas, and coal infrastructure can be built if the world is to limit global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit). That’s why Patrick McCully, a senior energy transition analyst for the French nonprofit Reclaim Finance, which advocates for a more sustainable banking sector, said legislators should be “pushing the banks to reduce their financing of fossil fuels.” 

“These companies are acting against the interests of humanity, and we need to stop them,” he told Grist.

Fajans-Turner, however, said a policy of this nature would be difficult to write into law and would likely face legal challenges even in the most progressive states, where natural gas bans on new construction have been beaten back by industry groups. 

Ann Lipton, a business law professor at Tulane University, said a better way for policymakers to limit new fossil fuel projects is to look beyond the banking sector. For instance, lawmakers could require insurance companies to factor in climate-related financial risks when designing their policies — which could make it harder for fossil fuel projects to get coverage. “We would love banks to stop financing risky activities, but at the end of the day the job of a bank is to finance things that are predictably profitable,” she said. “It’s the job of the rest of society to make that [thing] not profitable.”

Another strategy is to require that banks publish a clear decarbonization plan, which can, in theory, be a sort of back door to blocking new fossil fuel investments. “Implicit in having a target is that the bank is taking some kind of action to ensure that it meets that target,” Fugere said. If a plan mentions “net-zero” by a certain date, then to be credible it must involve some sort of scaling back of fossil fuel financing. If it claims to align with a pathway to limit global warming to 1.5 degrees C, then it must not enable the expansion of fossil fuels. 

In the U.S., investors like As You Sow have pressured several big banks into voluntarily offering more information about their plans to reduce greenhouse gas emissions, but requests for greater detail were rebuffed last year. (At least one bank, Wells Fargo, has done an about-face, recently dropping its net-zero target altogether.) 

Legislation to require detailed decarbonization plans has seen more success on the international stage. The European Union, for instance, is beginning to use two corporate sustainability directives approved by its parliament to require financial institutions to adopt a “transition plan for climate change mitigation.” The laws require institutions to make their “best efforts” to ensure that their plans are compatible with a pathway toward achieving climate neutrality by 2050 and limiting global warming to 1.5 degrees C.

McCully said these regulations are promising but noted growing opposition to them from right-wing governments in Europe. “We need to defeat that pushback to make sure that legislation is going to be able to survive,” he said. 

Even as they push for stronger government oversight of the banking industry, organizations like the Rainforest Action Network and Reclaim Finance say they plan to continue drawing connections between the financing of fossil fuel projects and the harm these projects may cause to communities — whether directly, because of the risk of oil spills and explosions, or indirectly because of accelerating climate change. Mass demonstrations and research publications like Rainforest Action Network’s annual report can theoretically increase the public’s appetite for state, national, and international regulation.

“It’s hard to be optimistic,” said Quentin Aubineau, a policy analyst at the nonprofit BankTrack, which does research and advocacy around banks’ role in the climate crisis and human rights violations. “But we have a lot of people working on the ground, doing a lot of research, and putting a lot of effort together to try to make a change. I think we will get there, even if it’s not the best environment to work in at the moment.”