What is the Net Zero Banking Alliance that Fed Farmers has the hump with?

Thursday, 16 January 2025

EXPLAINER: Federated Farmers wants the big five banks to follow the exodus of US banks out of the Net Zero Banking Alliance.

JP Morgan, Citigroup, Morgan Stanley, Bank of America, Wells Fargo and Goldman Sachs have since the start of December all resigned their membership of the alliance, a move interpreted as a reaction to Donald Trump being elected as US president.

But here in New Zealand, Federated Farmers has made no secret of its anger at banks setting emissions targets for farmers, and blames in part their joining the Net Zero Banking Alliance.

What is the Net Zero Banking Alliance?

It was an attempt by the United Nations Environment Programme Finance Initiative in 2021 seeking to unite banks worldwide in a commitment to “align” their lending, investment, and capital markets activities with the target of net zero greenhouse gas emissions by 2050.

The idea was that if the world’s biggest banks withdrew capital from carbon intensive business, and diverted it into lower carbon (and ultimately zero carbon) business, then the world’s economy could be greened.

There are currently 141 banks signed up, including some global big names New Zealanders would be familiar with like HSBC.

BNZ, ANZ, Westpac and Rabobank are members of the Net Zero Banking Alliance. ASB is not a member of the alliance, but its parent company, Commonwealth Bank of Australia, is.

What did banks signing up to it promise?

They had to promise that they would move to reduce greenhouse gas emissions from their lending and investment portfolios to align with pathways to net-zero by 2050 or sooner.

They couldn’t just promise, and then do nothing. Within 18 months of joining, they had to set targets for 2030 or sooner, and a 2050 target, with intermediary targets to be set every five years from 2030 onwards.

They had to publish reports on their progress each year, and if they were going to do any carbon offsetting (such as buying carbon credits) it had to be “robust”.

So why are the US banks leaving?

President-elect Trump’s statements on climate issues, and his appointing a climate sceptic to lead the Environmental Protection Agency, have sent a signal to markets. The big US banks appear to have responded to it, but are being coy about their reasons.

Daniel Esty, the Hillhouse Professor of Environmental Law and Policy at Yale University, said it sent a message the big banks cared less about the environment.

Todd Cort, co-director of the Yale Center for Business and the Environment, said there was also a set of improving economics around fossil fuel extraction, and the reputational risk of investing in them had fallen.

He also noted that some US banks were being sued for their net zero commitments, and regulators were asking questions about them.

And here in New Zealand?

Federated Farmers has complained to the Commerce Commission to ask it to investigate whether all our big five banks (roughly 97% of the industry) being in the Net Zero Banking Alliance was lessening competition in the agri lending market.

That was resulting in “cartel-like” behaviour from an alignment of bank policies, they said.

“Most of these banks are starting to set emissions reduction targets for farmers that look remarkably similar, and that’s a major red flag for us,” Federated Farmers banking spokesperson Richard McIntyre says.

Why has Federated Farmers got the hump with the alliance?

Many farmers are spooked, and unhappy.

Last last year, reporting by The Post revealed that three of the four big Australian banks were setting emissions targets for farmers, and they were setting tougher targets for New Zealand dairy farmers than Australian ones.

Only ANZ had not set targets, but reserved the right to.

It also emerged that banks were planning to withdraw funding from things like petrol retail, despite there being no clear pathway for the country to cease its dependency on petrol for transport.

Farmers and petrol stations were not the first sectors to feel the heat. Fossil fuel extraction, and thermal coal, was the first place banks looked to decarbonise their lending books.

Ultimately, Federated Farmers thinks banks could be on a track that will see them de-banking some farmers who can’t meet their emissions targets.

As the failed legal challenge by the Gloriavale segregated Christian community against BNZ’s decision to de-bank it on human rights concerns showed, banks can choose not to bank anyone they like.

BNZ’s contractual terms meant it could stop banking a person or entity for “any reason”, the Court of Appeal ruled in December.

That could, Federated Farmers argues, damage the whole country’s economy.

How to MPs feel about this?

There’s the Parliamentary banking inquiry going on, and clearly the co-chair Mark Cameron from ACT (a farmer himself) is not impressed.

McIntrye, who helped kick off the inquiry, is due to present to MPs on February 19, so we may learn about more MPs’ feelings soon.

He won’t be pulling punches.

“These big US banks have seen that their involvement in the Net Zero Banking Alliance is about to come under huge scrutiny. They’re leaving in droves because of lawsuits for anti-competitive behaviour within the banking sector and growing political pressure,” he says.

“Federated Farmers are now calling on our banks to do the same.“

Will the New Zealand banks pull out of the alliance?

They have shown no indications they will. All have told MPs they are committed to a net zero future.

Correction: An earlier version of this article said ASB was a member of the Net Zero Banking Alliance. ASB is not, but its parent company Commonwealth Bank of Australia, is.