Regulatory Whiplash: Banks Are Ditching Net Zero Targets For Resilience
Regulatory Whiplash: Banks Are Ditching Net Zero Targets For Resilience
The climate finance sector is reeling from regulatory whiplash. Major banks and asset managers are rapidly walking back climate pledges, retreating from net zero alliances as political winds shift. Trump-era anti-climate and "woke capitalism" policies are resurging, fuelling a broader global greenhushing trend where firms remain silent on climate action to dodge litigation and reputational risks.
The mass exodus
Since December, leading banks in the US, Canada and Japan have exited the Net Zero Banking Alliance (NZBA), a UN-backed coalition covering over 40% of global banking assets. NZBA members pledged to align financial activities with net zero emissions by 2050 to keep warming below 1.5°C and prevent the worst climate impacts. But that goal continues to slip as global temperatures rise. Now, the NZBA is considering weakening its commitment, shifting from the firm 1.5°C cap to a “well below 2°C” target of the Paris Agreement.
Banks walking back net zero commitments cite slow policy progress and a sluggish transition. Meanwhile, European banks – facing stricter regulations – are mostly holding firm, though some are taking a wait-and-see approach. While the EU’s streamlined Omnibus regulation proposal would ease some compliance burdens, these remain far stricter than the fragmented US approach, where the SEC’s climate rule has stalled. One thing is clear: banks and asset managers are abandoning voluntary coalitions at scale, creating a fractured landscape for climate finance (look out for the upcoming Verdantix Strategic Focus report on ESG and sustainability strategies in banking and financial services).
Shifting to physical risk and resilience
As net zero commitments weaken, financial institutions are pivoting to focus on mitigating physical risks and building resilience. According to an MSCI Sustainability Institute survey, 47% of institutional investors believe climate adaptation will take centre stage, and 57% agree that climate-related physical risks are already causing economic damage. These concerns will shape boardrooms, client conversations and capital allocation strategies for lenders, investors and insurers.
The insurance industry leads this shift, managing physical risk on both sides of its balance sheet. In the US alone, extreme weather events are intensifying: wildfires ignite in unexpected places, heatwaves break records and the most devastating hurricanes since Katrina make landfall.
Where vendors add value
Vendors with advanced physical risk modelling and geospatial data integration are playing a critical role in supporting the financial sector. As climate-related risks escalate, lenders, investors and insurers need deeper insights into how extreme weather, rising sea levels and shifting climate patterns impact their assets. Vendors that provide tools to analyse hyper-local asset risks and broader sector-wide trends help financial institutions identify vulnerable assets, track emerging risk patterns and make data-driven decisions to protect long-term value (see Verdantix Green Quadrant: Climate Financial Data And Analytics Providers).
Repositioning the conversation
The finance industry will always be client-centric. While many investors – especially in Europe – focus on the environmental impact of their investments, it’s just as important to consider how climate change threatens existing assets from a risk mitigation and resilience standpoint. Framing discussions through this lens can help move past the growing scepticism towards net zero, shifting the focus from ideology to financial prudence and long-term stability.
