NZBA Retreats From 1.5°C, Eases Climate Targets

The Net Zero Banking Alliance (NZBA), which is backed by the United Nations and includes more than 120 of the world's biggest banks, has officially relaxed its pledge to the ambitious 1.5°C global warming limit. In its place, the coalition has moved toward the more general objective of limiting global temperature increase "well below 2°C," under the Paris Agreement. This shift, which was approved by 90% of the participating members, reflects growing fears about the feasibility of meeting the 1.5°C target in the face of gradual progress in decarbonizing major sectors and mounting political and economic hurdles.

Shargiil Bashir, NZBA Chair and First Abu Dhabi Bank Chief Sustainability Officer, stressed that while 1.5°C continues to be the alliance's "guiding star," the course correction was inevitable in view of the prevailing realities. We're half-way through the decisive decade for climate action, and we need every sector, including finance and banking, to step up and drive emissions reductions," Bashir stated. But he admitted that transition in areas like aviation and housing has not gone according to plan because there has been a lag in technology and slow policy making. The knowledge we had in 2021 on what was achievable… has been very different than where we are today," he added.

The move arrives as political and economic headwinds slow climate action, especially in key markets such as the United States and the United Kingdom. Some of the big banks, such as HSBC, Morgan Stanley, and Wells Fargo, already postponed or reduced their own net zero targets due to operational challenges, weak policy environment, and increased political pressure on ESG strategies. Cambridge Associates Head of Climate Strategy Simon Hallett explained the change due to the nature of the challenges in carrying out aggressive climate commitments. "The last few years have witnessed their foot soldiers attempting to make good on those pledges — and understand it's really very difficult because there's an enormous co-ordination problem," Hallett added.

Regardless of this reasoning, the step has attracted condemnation from climate campaigners and stakeholders in anxiety over a deterioration in climate ambition in the finance sector. Jeanne Martin, ShareAction's Co-Director of Corporate Engagement, was disappointed, saying that such moves undermine the integrity of voluntary climate pledges. "We are extremely disappointed that large banks have pressured the NZBA to weaken its guidelines on 1.5°C… while we are witnessing record droughts and devastating floods," she said. Martin emphasized the need to continue being ambitious, observing, "Every 0.1 of a degree counts… and the higher the banks' and investors' financial stakes."

The retreat also poses legal and reputational risks for financial institutions. Lawyers contend that banks might be sued if they cannot explain the retreat from earlier articulated climate targets. Becky Clissmann, an Ashurst lawyer, highlighted that political and scientific uncertainties could offer some explanation, but the courts would want a valid and justifiable explanation for such a reversal. "Accepting the science and the political context, and accepting 1.5°C is getting more and more out of reach… the courts would consider a compelling story," Clissmann said.

In reaction to the controversy, the NZBA asserts that this change is a move from merely establishing targets to actually putting them into practice. The alliance is now committed to arming its members with the tools necessary for effective climate action. This involves providing sector-specific advice, conducting capacity-building webinars, and investigating alternative approaches such as the utilization of carbon markets and the use of avoided emissions in accounting systems. "NZBA is best placed to offer banks hands-on assistance on making the transition to net zero," Bashir confirmed.

There are, however, larger green finance and global decarbonization implications. With less emphasis on a single 1.5°C target, there is a risk that banks will delay climate action or redirect investments away from hard-to-decarbonise industries. For institutional investors, climate watchdogs, and regulators, this moment represents a critical turning point for evaluating the genuine commitment and tenacity of the private sector in embracing climate leadership. As risks to the climate mount around the world, the financial sector's commitment—and liability—will come under increasing questioning.