The exodus of major Wall Street banks – Goldman Sachs, Wells Fargo, Morgan Stanley, Citigroup, Bank of America, and JPMorgan Chase – from the Net-Zero Banking Alliance (NZBA) marks a troubling setback for global climate finance. While the decision appears to anticipate a change in political winds and regulatory landscape under the incoming Trump administration, its ripple effects extend far beyond U.S. borders to Southeast Asia.
Southeast Asia is one of the regions most vulnerable to climate change. With its low-lying coastal cities, reliance on agriculture, and significant populations at risk of climate-induced displacement, the region relies heavily on international financing to achieve climate adaptation and mitigation targets.
The U.S. bank withdrawal from the NZBA could affect the progress of Southeast Asian nations in achieving their Nationally Determined Contributions (NDCs) due to fewer giant banks showing open intention to finance decarbonization efforts.
As of the second quarter of 2024, the total assets of the 145 members of the NZBA were $71.58 trillion, and the U.S. banks that left the alliance comprised almost 20 percent of those assets, or $14.29 trillion. Without the participation of U.S. banks in the alliance, the already limited pool of climate finance may shrink further, potentially increasing borrowing costs.
This mainly concerns economies like Vietnam, Indonesia, the Philippines, Thailand, and Malaysia, which are seeking investments and loans to build climate-resilient infrastructure. Higher costs could deter much-needed green investments, prolonging dependence on fossil fuels and leaving these nations more exposed to climate risks.
The withdrawal of U.S. banks could affect commitment to some climate-related finance projects, such as the Just Energy Transition Partnership (JETP) between Southeast Asian nations Indonesia and Vietnam and the International Partners Group (IPG), which the United States is part of.
Both Indonesia and Vietnam secured the initial commitment of, respectively, $20 billion and $15.5 billion from the IPG funding and the Glasgow Financial Alliance for Net Zero (GFANZ), a coalition that formed out of the COP26 climate conference in Glasgow that gathers together other initiatives, like the NZBA.
The U.S. offered a large portion of the funds for both beneficiary countries. For Indonesia, the U.S. planned to provide $2.07 billion for the JETP, half of which comes from commercial loans. For Vietnam, the U.S. planned to offer $1.05 billion, more than 90 percent of which comes from commercial loans. The U.S. banks’ departure from the NZBA clearly affects those big chunks of climate finance that lead to uncertainty about the JETP’s future.
Not only the JETP is at stake. The U.S. banks’ exit might also affect other initiatives, like Goldman Sachs’s Climate Innovation and Development Fund (CIDF) in Vietnam.
Even though the NZBA’s efficacy in effectively reducing greenhouse gas emissions is still questionable, empirically, this alliance reduced lending by 20 percent to sectors such as oil and gas, power generation, auto manufacturing, and shipping that members of the NZBA had targeted.
By reducing financing for high-carbon-intensity projects, the alliance has created the right incentives and enabled the environment for green investment to proliferate in developing countries in Southeast Asia.
However, the exit of major U.S. banks mean that Southeast Asian nations have no collective framework to hold them accountable, raising the willingness to lend to fossil fuel or high-carbon-intensity projects. Consequently, climate risk in this region remains high.
The U.S. banks’ retreat at this time sends a powerful signal that undermines the alliance’s credibility. Their participation was crucial because of their reputation as early participating banks; half were founding members of the NZBA since 2021. This exit potentially emboldens other financial institutions to deprioritize climate goals in emerging economies with relatively higher risk than developed economies.
Ironically, only a month before the exodus, at the 29th Conference of the Parties (COP29) in Azerbaijan in November 2024, countries agreed to triple the climate financial flow from developed to developing countries at $300 billion annually by 2035. Even though this is way below the actual needs target, it might be challenging still without U.S. banks committing to chipping in.
The retreat is not just a moral failure but also a missed opportunity for U.S. banks to lead in shaping a more sustainable global economy. As the world races to avert climate catastrophe, their absence leaves a critical gap, increasing climate risks for developing nations and underscoring the urgent need for alternative financing mechanisms and robust global cooperation.