Why the implosion of a climate pact matters

Driving the news: JPMorgan Chase on Tuesday became the final U.S. megabank to withdraw from NZBA, joining Morgan Stanley, Citigroup, Bank of America, Wells Fargo and Goldman Sachs, all of which have also left in recent weeks.

• Those banks were already near the bottom of a league table that ranks banks by the amount of investment banking fees they get from green sources, as opposed to high-emission sources.

The big picture: The idea behind NZBA is that any given dollar mobilized by a bank could go to financing the climate transition, thereby making the world greener — or it could finance industrial activity that ends up emitting more carbon, thereby exacerbating the climate crisis.

• If the world's biggest banks all pledge to maximize the former and minimize the latter, NZBA becomes a positive-sum endeavor that prevents the worst global-warming scenarios, invests in adaptation and mitigation technologies, and broadly helps to put the global economy on its strongest possible future path.

Follow the money: Behind that pledge lies the idea that if banks funnel less money to carbon-intensive industries, that sector's cost of capital will rise, making it less competitive and ultimately a smaller part of the economy.

• Naturally, that upsets executives in the oil industry.

Between the lines: Groups like NZBA tend to look like globalist cartels when viewed through a MAGA lens, so there's a strong incentive to find ways to achieve their goals without requiring formal membership.

• NZBA, along with its parent organization, the Glasgow Financial Alliance for Net Zero (GFANZ), have already developed the frameworks necessary for banks to know whether they're pacing to hit their targets.
• As such, remaining in the alliance might not be necessary, says Daniel Firger, managing partner at Great Circle Capital Advisors.

Where it stands: None of the big U.S. banks has — yet — retreated from the actual net-zero commitments they made when they joined NZBA. They've just left the group.

• It's therefore possible that nothing is going to change in practice — that the banks are engaging in so-called "greenhushing," where they privately stick with their climate agenda but don't say much about it in public.
• Conversely, says John Kostyack, a consultant working on climate-related financial risk, "the U.S. banks have shown that they want to be first in line for financing emitters. That's not going to change."

Zoom out: The exodus from the group has echoes in Corporate America's retreat from the Human Rights Campaign's Corporate Equality Index, part of an overall pullback in diversity, equity and inclusion programs (more below).

• There, too, it remains unclear whether a decrease in outward-facing commitments on such matters will be matched by a diminution in actual internal commitment to those goals.

What's next: If membership in voluntary organizations is becoming increasingly untenable (a similar retreat can be seen at groups like Climate Action 100 and GFANZ more broadly), then perhaps legislation can compel a similar alignment.

• As the nation's banking center, New York in particular has the ability to pass a law that enforces various climate commitments.
• "I would not be surprised if this kind of activity leads New York to get more aggressive with the bankers," Kostyack tells Axios.
• "These exits reveal the inadequacy of voluntary commitments," says Vanessa Fajans-Turner, executive director of Environmental Advocates NY. "The banks won't self-regulate, so New York must do it for them."

The bottom line: Dismantling climate action is a large part of the MAGA agenda.

• Doing so won't be easy, but it's clear the pendulum has already swung far away from where it was when GFANZ and NZBA were created in 2021.