Wall Street’s climate retreat: “What are we doing here?”

There’s a fun phrase I’ve encountered increasingly often in The Discourse.  It’s highly flexible, applicable to everything from the latest Trump eruption to the pervasive bad behavior of Silicon Valley.

The phrase is:  “What are we doing here?”

I like it a lot, because it captures that special blend of exhaustion and incredulity which many of us feel having endured wave after wave of political, corporate, and societal nonsense.  While we’re no longer entirely surprised by each fresh spasm of inanity, we’re still exasperated by them, and left wondering – forlornly – how things came to such a pretty pass.

It’s a phrase that came to mind following the latest exodus of financial institutions from the Net Zero Banking Alliance (NZBA), one of the leading climate finance alliances born amidst the ESG boom.

Morgan Stanley abandoned the alliance this Thursday, while Bank of America and Citigroup exited the week before.  Goldman Sachs and Wells Fargo jumped ship earlier in 2024.

What are we doing here?

The smart money says these defections are at least partly related to the anti-ESG wave that has overwhelmed corporate America in recent years, and the growing threat of Republican-led investigations into companies that carry the slightest whiff of “woke”.  The incoming Trump presidency and Republican trifecta at the federal level make this threat all the more acute.  

Therefore, leaving the NZBA – membership of which puts a big, fat target on the backs of any institution Republicans think they can make political hay from attacking – may be just good business sense.  Legal fights are expensive and political entanglements make for bad PR.  Why invite this kind of trouble when all a CEO needs to do is recant a voluntary commitment statement?

I get it, I really do.  Though I do think it’s ominous that private organizations may be spooked out of voluntary associations for fear of government reprisals. (And yes, there is a difference between corporate groupings like the NZBA that promote best practices and anti-competitive cartels that conspire to raise prices and screw over consumers – no matter what MAGA lawmakers say.  If there wasn’t, then bank lobby groups the Financial Services Forum and Bank Policy Institute would also, presumably, be fair game).

There’s also a part of me – a small part, mind you – that hopes that by disaffiliating from the NZBA, the well-meaning climate-focused professionals at each of the Wall Street banks may be able to pursue their agendas unburdened by the looming threat of legal action and public shaming by publicity-obsessed Republicans.  

What’s more likely, though, is that the banks’ retreat from these alliances add greater impetus to an ongoing shake-up (and downsizing) of their in-house climate and ESG teams. Just last month, we heard how Citi cut its climate and ESG reporting teams.  This followed the departure of the bank’s head of transition risk model development in July.  Also late last year, HSBC removed its chief sustainability officer, Celine Herweijer, from its top decision-making body. Weeks later, Herweijer stepped down from the bank entirely.

So my small hope is probably misplaced.  The NZBA defectors are more likely than not to further erode their climate functions and redirect resources to the presumed moneymaking themes of 2025 – AI, data centers, and private credit.  Sigh.

While accepting the capitalistic imperatives of Wall Street banks – and the cold logic of what makes for “good business” in Trump’s America – I still can’t help but feel disappointed.  I wrote last year that banks are, in fact, members of  “the climate police”, along with all other public and private bodies – no matter what their executives would wish:

“We live in a complex, interconnected world, the entirety of which will be affected by climate change one way or another.  We all have a role to play, and we don’t have to wait around for governments to finetune the policy superstructure to get started.”

Alas, the NZBA apostates have taken a step that arguably diminishes collective climate action across the financial sector and reduces their scope to affect change.  

And no, I don’t think the NZBA is some kind of heroic organization that is single-handedly making the banking sector significantly greener.  What the alliance actually boils down to is a collection of best practices, frameworks, and convenings that support banks that are already committed to the climate transition. 

The NZBA, and its umbrella organization the Glasgow Financial Alliance for Net Zero (GFANZ), have pumped out thousands of pages of guidance for financial institutions on how to align their portfolios with net-zero goals.  And though they have their critics, I believe that if these alliances didn’t exist, it would be necessary to invent them.  Climate action is collective action, and in finance-land, the first-mover problem has long been a brake on meaningful change in business practices. 

What the NZBA, GFANZ, and its affiliate organizations did is build consensus over the different ways in which the financial sector could combat climate risk and power the energy transition. By virtue of their broad memberships, they also got the word out to a huge range of organizations and engaged entities that may otherwise have let the whole climate-ESG movement pass them by.

They have not, and never could, force members to follow specific guidance on decarbonizing their portfolios. I believe popular (and at times, wilful) misunderstanding on this point, by the alliances’ progressive and reactionary critics alike, is a big reason why they came to be seen as more hindrance than help to the climate cause.

Still, they mattered – and still matter.  There is strength in numbers and value in group action.  Otherwise, why would the alliances have been seen as a threat – however illusory – by MAGA Republicans?  

By leaving the NZBA, Wall Street’s finest have weakened the alliance and diminished the power of the remaining members.

What are we doing here?