By Grace Ademulegun
Climate-related financing programmes are hit by an avalanche of withdrawals by American banks and the U.S. Federal Reserve, as Donald Trump resumes the United States presidency, Monday, January 20.
Trump is a staunch opponent of climate change policies.
The U.S. Federal Reserve has announced exiting the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a global organisation that looks into how regulators and central banks can handle climate-related risks in the financial industry.
The financial institution said it was leaving the NGFS because of the group’s growing operations which, it claimed, had increasingly exceeded the central bank’s statutory authority.
Established in 2017, the NGFS seeks to support financial regulators and central banks in incorporating climate-related risks into their policy frameworks.
This entails evaluating the potential effects of climate change on financial stability and advising organisations on how to manage these risks.
Although the Fed has attempted to examine how climate change affects the financial system, Chairman Jerome Powell has insisted that the Fed has no jurisdiction over the issue.
He has underlined that Congress, not the central bank, should decide on such matters. This position aligns with the growing skepticism about climate risk-focused regulation actions in the Republican-controlled Congress.
As companies and financial institutions reevaluate their participation in climate-related regulation initiatives, the Federal Reserve’s decision to withdraw from the NGFS is a part of a larger trend.
That same day, Bank of Montreal made history by becoming the first Canadian bank to declare its intention to withdraw from the Net-Zero Banking Alliance, a private sector organisation dedicated to climate change.
This pullout highlights the continued conflict between climate change measures and the financial industry, especially as new political leadership is ready to assume office in Washington.
Four of Canada’s biggest banks have followed suit, announcing that they are leaving the Net-Zero Banking Alliance (NZBA), a global alliance that aims to address climate change in the financial industry.
Following a slew of well-known American banks that have taken similar actions, TD Bank, Bank of Montreal, National Bank of Canada, and Canadian Imperial Bank of Commerce (CIBC) all announced their withdrawals on Friday.
The departures occur before Donald Trump returns to the White House, where he will take office the following week.
Many people think that the banking industry’s choice to reevaluate its commitments to climate-focused programs was influenced by the former U.S. president’s long-standing criticism of government-led environmental regulations and climate change policies.
Major U.S. financial firms such as Wells Fargo, Citi, Bank of America, Morgan Stanley, and JPMorgan have also left the Net-Zero Banking Alliance, and the Canadian banks are the latest to do so.
With the backing of former Bank of Canada Governor Mark Carney, the NZBA was established in 2021 with the intention of uniting financial institutions in order to lessen the finance sector’s contribution to climate change.
In order to hasten the global shift to a greener economy, the alliance urged banks to establish aggressive goals for reaching net-zero emissions by 2050 and to cooperate with one another.
The withdrawing banks did, however, stress in their own remarks that they may continue to advance climate goals outside of the NZBA framework. In its early years, the alliance provided a useful platform, according to CIBC, but the bank was now in a position to concentrate on climate action on its own because of the substantial progress that had been accomplished.
“The NZBA was established during a period when the global industry was intensifying its efforts to address climate change, and it played a significant role in igniting these endeavours and creating momentum,” CIBC stated in its statement.
“We are now in a good position to continue this work outside of the official structure of the NZBA, as this space has developed and grown, and we have made great strides in these areas with our clients.”
The influence of Canadian banks’ financing activities on the environment, especially in the fossil fuel industry, has drawn more attention to the sector in recent years. Financial institutions are under increased pressure to create their own plans to deal with climate change as a result of the introduction of climate-related risk management recommendations by Canadian regulators.
Questions concerning the future of financial sector participation in climate efforts are raised by the timing of these withdrawals, which occurred before Trump’s return to office, as the global banking landscape changes.
The actions are viewed as a setback for global climate goals by some, but others raise the possibility that big institutions could discover new ways to advance sustainability independent of global coalitions.
In any event, the departure of these significant individuals marks a turning point in the relationship between finance and climate policy, as changing laws and political changes continue to influence how international efforts to combat climate change will proceed.