- Net Zero Banking Alliance (NZBA) weakens its 1.5°C commitment, shifting toward a broader “well-below 2°C” alignment under the Paris Agreement.
- Banks cite coordination challenges, sluggish policy progress, and fiduciary risks as reasons for the shift—mirroring a broader pullback in climate ambition across the finance sector.
- Legal and reputational risks loom, as investors and regulators scrutinize the rollback of climate pledges in an era of intensifying climate-related financial risks.
The Net Zero Banking Alliance (NZBA), a UN-backed coalition of over 120 global banks, has formally voted to loosen its commitment to the 1.5°C global warming target, pivoting instead to the broader “well-below 2°C” goal outlined in the Paris Agreement.
“We are halfway through the critical decade for action on climate, and we need all sectors, including banking and finance, to commit to moving the needle on emissions reductions,” said Shargiil Bashir, NZBA Chair and Chief Sustainability Officer at First Abu Dhabi Bank.
While the NZBA maintains that 1.5°C remains its “guiding star,” the vote—backed by 90% of participating members—reflects growing unease with the pace of real-economy decarbonization. The alliance now embraces a more flexible framework, acknowledging the slower-than-expected progress in key sectors such as housing and aviation.
“The knowledge we had in 2021 on what was achievable… has been very different than where we are today,” Bashir added. “Some of the industries are not transitioning as we expected… either the technology is not moving as fast or the policymaking is not moving as fast.”
This shift comes amid mounting economic and political headwinds, particularly from markets like the US and UK. Major banks including HSBC, Morgan Stanley, and Wells Fargo have delayed or scaled back net zero targets, citing practical barriers and intensifying political scrutiny of ESG strategies.
“The subsequent years have seen their minions try to deliver on those commitments — and realise it’s actually very hard because there’s a giant co-ordination problem,” said Simon Hallett, Head of Climate Strategy at Cambridge Associates.
Critics argue that this pivot undermines the credibility of voluntary climate commitments—especially as only 30% of major emitters currently have 1.5°C-aligned transition plans.
“We are deeply disappointed that major banks have pushed the NZBA to water down its guidelines on 1.5°C… even as we are seeing historic droughts and catastrophic floods,” said Jeanne Martin, Co-Director of Corporate Engagement at ShareAction.
“Every 0.1 of a degree matters… and the greater the financial risks for banks and their investors.”
Legal experts are also sounding alarms. Without clear and defensible rationale, banks could face litigation for stepping back from previously stated climate goals.
“Acknowledging the science and the political backdrop, and acknowledging that 1.5°C is looking increasingly unachievable… the courts would find that a compelling narrative,” said Becky Clissmann, Lawyer at Ashurst.
Despite the controversy, NZBA leadership emphasizes that the change marks a move from “target-setting to implementation.” The alliance will now offer members practical tools—like sectoral guidance and capacity-building webinars—while exploring alternate methods such as carbon markets and avoided emissions accounting.
“NZBA is uniquely positioned to provide practical support to banks navigating the net zero transition,” Bashir stated.
Still, the implications for green finance are significant. With reduced emphasis on a uniform 1.5°C benchmark, banks may delay decarbonization efforts or redirect capital away from hard-to-abate sectors. For institutional investors and regulators alike, this rollback signals a critical juncture in the credibility—and durability—of private sector climate leadership.
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