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Welcome home. The net zero alliance in the financial sector gained a great popularity several years ago, with variations in the insurance, asset management and banking sectors being launched.
However, some of Wall Street’s biggest lenders left the group at Stampede, which began in December. And now their Japanese ally has also stopped. What’s behind these latest exits? Please read more.
Net Zero Alliance
Japan’s escape from the NZBA
Donald Trump’s reelection has quickly hit Wall Street Banks towards the exit of the Net Zero Banking Alliance (NZBA). Most of their Japanese peers now follow suit.
Last month, five of the NZBA’s six Japanese members left the group, many of the largest global lenders who have pledged to support the Paris Agreement goals. The latest one is Mizuho Financial Group, confirming its departure last week. Of the Japanese institutions that joined the alliance after its release in 2021, only Mitsui Trust Group (SMTG) remains.
Activists are wary of this trend, given that Japanese banks accounted for more than a quarter of NZBA’s Asian membership.
“Asia is at the forefront when it comes to fossil fuel development. If the market receives a message that Japanese banks are weakening their commitment to climate change, that’s very worrying.”
Michael McDud, a senior equity analyst at Morningstar, said he was calling more businesses from the US “probably drivers.” “To be in the US, they had to adapt to US priorities,” he added.
For example, the CEO of Mithui Mitsui Financial Group cited US expansion as a major strategic priority in an interview in January when SMFG became the first Japanese lender to quit the alliance. (Even though its similar names, SMFG and SMTG are separate businesses.)
Another contributor is that under the Trump administration, the US is pushing for other Asian countries such as Japan and South Korea to purchase and invest in Alaska’s liquefied natural gas projects. In late March, the Alaska governor and other American officials concluded their nearly two-week trip to Japan, South Korea and Taiwan.
As Kenkoyama (IEEJ), chief economist and senior managing director of the Japan Institute of Energy Economics (IEEJ), said:
Putting Japanese megabanks in the alliance would have been a major constraint for Japanese energy companies seeking to raise funds for the project.
But while the emergence of the Trump administration focused on the development of fossil fuels, the shift had already been moving after Russia launched a full-scale invasion of Ukraine in 2022, Koyama said. As a resource-lacking country, he explained, “fossil fuels were an important part of helping Japan protect its energy security and stable electricity supply.”
“Japan followed suit with other developed countries to work towards a net-zero goal, but it was far too well aware of the importance of a stable supply of fossil fuels,” he said.
This dynamic was clear even before the recent departure from the NZBA. Japanese banks rank among the top 12 financiers of fossil fuels worldwide, according to Climate Chaos’ annual bank report, produced by a coalition of nonprofits. “Even when they were in the alliance, Japanese banks were not in line with the requirements of the NZBA,” Watanabe said.
Looking ahead, Koyama, Watanabe and McDad all expect it to be a matter of time before the last remaining Japanese alliance members leave the group. “We know that other companies are withdrawing,” an SMTG spokesman told me. “As of April 7th, no decision has been made regarding the withdrawal,” they said.
It is still unclear whether this trend will spread to other alliance members in Asia. The NZBA currently has 18 Asian members, including seven from South Korea, three from Singapore and one from China.
The opportunities for groups to maintain these banks, and even the possibility of attracting other banks, could be boosted by the possibility of relaxing membership rules. NZBA members are currently considering a proposal to remove the requirement for banks to align assets with the Paris contract’s goal of limiting warming to 1.5C. Meanwhile, the departures of these Japanese lenders look like a loss of damage. (Yoshida ka, nikkei)
Smart Lead
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