Authors: Matt Piotrowksi
The “2025 Retreat” of Financial Institution Climate Action Is No Reason to Panic
Over the course of 2025, financial institution climate action has decreased in the face of a vocal backlash against sustainable investment, with some institutions publicly loosening their net zero commitments in addition. Despite these shifts, climate transitions will deter the total abandonment of financial institution climate action.
The global push toward a low-carbon economy needs to intensify to meet long-term climate goals, but a growing trend of major global financial institutions reversing course is emerging. Nineteen key players including JPMorgan, Nomura Holdings, Inc., Royal Bank of Canada, and others have recently pulled out of the Net-Zero Banking Alliance (NZBA), a coalition formed to help banks align their operations with achieving net-zero emissions by 2050. Asset managers have similarly scaled back from green investments and there has been a slowdown in the issuance of green bonds. Some companies have either scrapped their long-term commitments or have not done enough to meet their goals.
This retreat comes in the face of a vocal backlash against sustainable investing, with critics arguing that prioritizing environmental goals over fossil fuel investments undermines shareholder value and economic stability. As these banks scale back their climate commitments, the resulting risks to the energy transition — including higher financing costs, difficulty securing investment for green initiatives, and regulatory uncertainty — could slow decarbonization, making global climate targets harder to meet. In the current political climate, the shift away from collective climate action may slow efforts in the years ahead to build a more sustainable financial system, setting the stage for increased environmental and economic challenges. Publicly, alliances, such as NZBA, have also responded through the loosening of standards required by its members from a 1.5C target to a target “well below 2C target, aiming for 1.5C”.
Digging deeper it is possible to find the reasons for this financial institution climate action retreat from climate groups and their commitments, but it is also possible to see why the current situation likely will not endure. Indeed, many financial institutions may still be actively working to decarbonize their operations and finance sustainable projects, even with a retreat from public commitments. This is not a complete abandonment of climate goals. The pendulum for politics and the finance sector will likely swing back toward greater climate action, bringing with it significant opportunities to strengthen commitments and invest in innovation, independent initiatives, and alignment with future regulatory and market shifts.
Factors that have led financial institutions to backtrack from climate commitments include:
1. Conservative Backlash to ESG Investing and Financial Institution Climate Action
A recent trend likely behind financial institution climate action scaling back is the backlash against Environmental, Social, and Governance (ESG) investing. In recent years, conservative policymakers have argued that financial institutions focusing on climate commitments and aiming to move away from fossil fuels are detrimental to shareholders and consumers.
In the U.S., Republicans have been aggressive in attempting to undermine financial institution climate action in recent years. For example, in 2022, attorneys general in a number of Republican-led states investigated U.S. companies in the NZBA for anti-trust activities, prompting the group to change its guidelines. Late last year, a number of conservative states sued asset management firms BlackRock, Vanguard, and State Street for allegedly undermining the coal industry and increasing electricity prices because of their policies to pivot away from fossil fuel investments. The U.S. House of Representatives Judiciary Committee released a report late last year arguing that the three asset managers, along with climate coalitions, have “colluded” on decarbonization goals to undermine the U.S. energy industry.
With U.S. President Trump’s administration supporting fossil fuel expansion and Republicans controlling both the U.S. Congressional House and the Senate, financial institutions are concerned that a continued focus on ESG will draw greater scrutiny on their activities while operating in U.S. markets.
2. Financial Institutions Still Tied to Fossil Fuels and Other Polluting Sectors
Another factor behind the recent shift is that fossil fuel investments, either through debt or equity, still remain attractive. Reducing exposure to the fossil fuel industry while increasing investments in green energy may put financial institutions at a disadvantage compared to their competitors. The U.S. is amid a major oil and gas boom, making it the largest producer in the world. Financial institutions have been skittish about pulling back from the oil and gas industry for fear of missing out on this rapid growth. To fully align with the NZBA’s original standards, this required aggressive curbing of exposure to fossil fuels by financial institutions. However, that would require these institutions to relinquish a portion of their core business, a major shift in investment strategy that could undermine financial performance.
Recent data shows that financial institutions have remained highly exposed to the fossil fuel industry and have yet to pull back from financing the sector despite the Paris Agreement and their stated climate commitments. Between 2016 and 2023, six major banks in the U.S. – all of whom withdrew their NZBA membership this year – provided $1.8 trillion in financing to the fossil fuel industry, accounting for a quarter of the global total. This exposure has prompted sharp criticism from climate NGOs that argue that financial institutions should not be investing in fossil fuels but instead speeding up an energy transition.
3. Leaving NZBA Alleviates Pressure On Commitments, But Not Pressure From Regulations
Financial institutions are also stepping back from climate commitments as a pragmatic reaction to changes in global politics. Leaving global climate alliances and pushing back voluntary targets carries significant reputational risks, but financial institutions now see these risks balanced against the possibility that shifts in the political world will lead to policies that make achieving their climate targets unfeasible. Failing to meet climate commitments draws public and media criticism as well. In a world where major policymakers are advancing policies to halt climate action, financial institutions are calling into question and retracting net-zero climate goals they established years ago that were dependent on increasing support from policymakers.
The financial sector, alongside others, is reversing course at a time where there is heightened concern about lawmakers proactively scrutinizing the corporate actors publicly committing to ESG-related activities. This is part of a broader shift beyond climate change, such as decisions by Meta, and others, to remove its fact-checking apparatus and its Diversity, Equity, and Inclusions programs.
These moves are the opposite of what occurred soon after the adoption of the Paris Agreement and during the first Trump administration when financial institution climate action accelerated. For instance, in 2017, JPMorgan reaffirmed its support of the Paris Agreement, despite the U.S. withdrawing from under President Trump’s first term, while also integrating greater ESG measures into its operations. Bank of America set a goal of financing $125 billion for sustainable businesses. Citigroup planned to invest $100 billion for sustainable development over the course of a decade, while also playing a major part in the Task Force on Climate-related Financial Disclosures (TCFD). Other financial giants moved forward with similar plans.
Leaving the NZBA signals that financial institutions will be more calculated with new climate commitments and sustainability goals to strategically boost their reputations, but there is no sign of ending investments in green economy opportunities beneficial for long-term financial performance. It remains to be seen if some institutions will rejoin the NZBA under its new standards. Although financial institutions have exited the Alliance, most say that they are not giving up on their net-zero commitments. Instead of working toward them collectively, they argue that they can make more robust progress individually. “We remain committed to reaching net zero and continue to be transparent about our progress,” Citigroup said. JPMorgan said it would “work independently to advance the interests of our firm” and still focus “on pragmatic solutions to help further low-carbon technologies while advancing energy security.”
It is good to note that for other regions of the world and other financial sectors, the story is different. For example, institutional investors have shown real signs of continued commitment to climate action, although they too have decreased their a lowering of public profile on climate and ESG issues. In the EU, and other parts of the world, laws and regulations to meet renewable energy targets, increase corporate sustainability reporting, and clean up supply chains mean even U.S. banks can’t ignore climate transition risks. Financial institutions have been building out their climate analysis and investment teams for almost a decade now and know the physical and regulatory risks of inaction are greater than most companies in their portfolios can afford long-term.
You can learn about the latest moves regarding global climate-related financial regulation and supply chain due diligence with the Orbitas Climate-Related Financial Regulation Explorer.
The Bottom Line: Financial Institution Climate Action Will Be Back in Fashion
The beginning of 2025 reflects a short-term retreat from the pace of private sector action seen in recent years. Despite the short-term nature of this shift, there will be an increase in climate-related transition risks for investors and companies vulnerable to climate change impacts and policy shifts, with likely higher financing costs or increased difficulty securing investment for green initiatives.
But while the recent announcements and trends are a shift toward retreat, it is unlikely a complete abandonment of financial institution climate action over the longer term. We will likely see a longer-term arc moving toward more ambitious climate efforts. There remain significant financial opportunities for companies and financial institutions to invest in opportunities driven by climate transitions and ways to show continued commitment to climate action. These banks have invested a lot of time, staff and energy into building their sustainable investment products and teams. To abandon them now solely because of a major political backlash in a few markets is not strategic, a waste of time and resources. The forces that are driving this trend could even be reversed in just a few year’s time.
In fact, many asset managers say that, despite the current political environment, sustainable investing will grow in the coming years. A survey of 900 institutional investors throughout North America, Europe, and Asia, published by Morgan Stanley, says that more than three-quarters of asset managers believe that their assets under management in sustainable funds will grow through 2026 amid government mandates and demand from clients. Two-thirds of asset owners and managers surveyed have net-zero targets, with plans to meet them.
Nevertheless, the recent moves regarding financial institution climate action with President Trump in office – and political shifts in governments around the world towards an anti-climate action stance – will likely curb recent momentum and increase greater uncertainty for corporations and investors exposed to climate-related transition risks. The shift in public expression provides a learning opportunity for how embedding the reality of climate change risks of all types in the financial sector, establishing more nuanced goals for financial institution climate action, and eventually the resilience of climate action in the long term. It might be better to think of 2025 so far as a reset for financial institution climate action, rather than a true retreat.