At a bank executives' conference this week, RBC CEO Dave McKay weighed in on the uncertain future of a net-zero climate alliance after several U.S. banks exited the agreement.Frank Gunn/The Canadian Press
Two of Canada’s biggest banks have signalled that they no longer believe the Net-Zero Banking Alliance is the most effective tool to encourage climate change efforts at major financial institutions.
Major U.S. banks have been leaving the global alliance to combat climate change as backlash against environmental initiatives mounts ahead of Donald Trump’s return to the White House.
At a conference Tuesday held by Royal Bank of Canada RY-T, the lender’s chief executive officer, Dave McKay, said that with U.S. banks pulling out of the Net-Zero Banking Alliance (NZBA), the agreement is “in flux” as organizations assess whether the NZBA is the right organization or mechanism to address climate change.
“If our countries have an objective to get to a certain point, we will be part of that, and therefore pulling out of NZBA hypothetically doesn’t lead to non-commitment to net-zero climate change,” Mr. McKay said. “It just means that mechanism, that organization that fostered oversight and policies and rules around what you can and can’t do and how you report, maybe that is not the right mechanism to do it.”
The NZBA launched in 2021 in an effort to encourage financial institutions to limit the effects of climate change.
Over the past month, JPMorgan JPM-N, Morgan Stanley MS-N, Bank of America Corp. BAC-N, Citigroup Inc. C-N, Wells Fargo & Co. WFC-N and Goldman Sachs Group Inc. GS-N have left the NZBA, which is a subgroup of the Glasgow Financial Alliance for Net Zero, known as GFANZ. Former Bank of Canada and Bank of England governor Mark Carney and Michael Bloomberg, the founder of Bloomberg LP and a former New York mayor, are co-chairs of the organization.
The moves have prompted questions over whether lenders in other countries could leave the group. Currently, Canada’s six largest lenders are members of the NZBA.
At the conference, Bank of Montreal BMO-T CEO Darryl White said that banks will make decisions based on the right approach for their specific market.
“We haven’t made any decision that’s any different from the one that we stand by, which is we’re a member of the alliance – at least we are today,” Mr. White said.
“We absolutely have a commitment to climate transition. We also have a commitment, particularly here in Canada, to our legacy energy customers, and we will not abandon that. What mechanism you choose to join or bodies that you choose to align with to enforce that – that’s just a pathway. The ultimate goal is unchanged.”
Similarly, many of the U.S. banks have expressed that their decisions to leave the group does not signal that they are ditching their net-zero targets or efforts to help clients achieve emission-reduction targets.
Late last week, the Canadian Bankers Association said that each bank implements and reports on its own climate strategies and plans.
“The banking sector in Canada understands the important role that it can play in facilitating an orderly transition to a lower-carbon economy, supporting collaborative approaches between the public and private sectors,” CBA spokesperson Maggie Cheung said in an e-mail statement on Jan. 2.
Canada’s banks have faced mounting pressure to address financial risks linked to climate change. The country’s banking regulator has said that climate change has the potential to disrupt the stability of the financial system, and ramped up scrutiny over the sector’s climate disclosures.
In 2023, the Office of the Superintendent of Financial Institutions introduced new guidelines that instruct financial institutions to consider potential climate-change consequences into their risk assessments. The guidelines require banks to enhance climate-risk disclosures and plan for a transition to a low-carbon economy.