War and the increase in anti-ESG sentiment in the U.S. are part of a new and "complex" set of hurdles making it much harder for Wall Street to meet the climate promises it's made, according to the chair of
"When you look at the environment around decarbonization and fossil fuels, the situation is more complex than it was even versus 2021," Tracey McDermott, who aside from chairing NZBA is group head of conduct, financial crime and compliance at Standard Chartered, said in an interview.
Russia's unprovoked attack on Ukraine, the energy crisis and U.S. politics are making it difficult for banks and necessitate greater clarity about the sector's environmental commitments, she said. That means there's "heightened sensitivity" among members about the implications of the commitments they've made, she said.
Against that backdrop, some of NZBA's biggest members in the U.S. have actively lobbied against curbs on fossil finance, according to people familiar with the process. And the alliance recently reassured signatories that they were free to ignore a proposal by a UN-backed group called Race to Zero, which had sought to map out a credible path to net zero by imposing binding restrictions on financing fossil fuels.
NZBA, which is one of seven groups that make up
The comments represent the clearest acknowledgment yet that the new world order is leading the finance industry to reconsider its priorities. With Vladimir Putin's invasion of Ukraine plunging the world into a dangerous energy security crisis, banks have stepped up their financial support of fossil fuels.
Loans to oil, gas and coal have reached $320 billion so far this year, up 9% from the same period in 2021, according to data compiled by Bloomberg. Lending has been led by Wells Fargo, with Royal Bank of Canada, Toronto-Dominion Bank and JPMorgan Chase not far behind. All are NZBA members.
"No one disputes for a moment that fossil fuels have to be phased down and out, but how that happens and what comes first is debated," McDermott said. "That you have to wean yourself off fossil fuels is accepted by NZBA. The question is: How do you deliver on that?"
Despite the rise in fossil-fuel lending, Republican states have been designing legislation to punish financial firms perceived to be hostile toward the oil, gas and coal industries. According to research by the hedge-fund provider NorthPeak, at least 18 traditionally red states have either enacted or proposed laws against firms suspected of promoting the environment, social justice and good governance.
The laws often target specific firms, with BlackRock and UBS Group among those caught in the crosshairs. McDermott said banks can't be expected to push through policies that aren't supported by the governments of the markets in which they operate.
"We can't achieve this without governments," she said. "Without a transition in the real economy, we won't reach net zero — governments must create an environment to encourage that to happen."
Such concerns may impact next month's COP27 climate summit in Egypt. The chief executives of some of the world's biggest financial institutions have already signaled they won't be attending.
JPMorgan, Morgan Stanley and Bank of America are among Wall Street firms to have previously voiced dissatisfaction with the net-zero demands being made, and indicated they'd even be willing to exit NZBA if binding restrictions were imposed, according to people familiar with the matter.
The International Energy Agency, meanwhile, warns that immediately
McDermott said that part of the challenge is finding enough renewable energy technology to absorb financial capital.
"I am sure we would all love to say we just do solar panels," she said. "But the technology, infrastructure and government policies do not exist in some countries to do that overnight. There's a shortage: We want to fund clean and green, but that requires some needed policies and risk sharing."
