Four of our largest banks have recently withdrawn from the UN-backed Net-Zero Banking Alliance (NZBA). This may seem like a setback for climate progress in Canada, but it simply underscores the limits of voluntary initiatives and the need for the government to enforce climate-aligned financial regulations.

This news also coincides with Mark Carney’s official entrance into the Liberal Party leadership race. For those who closely follow climate finance, this is happenstance because Mark Carney was the driving force behind the global NZBA initiative which our banks are now abandoning. This changing landscape of sustainable finance in Canada marks a moment for the potential leader of the Liberal Party of Canada to champion a climate-aligned financial system that addresses the shortcomings of these crumbling global initiatives.  

In 2021, at COP26 in Glasgow, Mark Carney helped create the ‘Glasgow Financial Alliance for Net Zero’ (GFANZ). This alliance is actually an alliance of alliances,  including the Net-Zero Asset Managers Initiative (NZAMI), the Net-Zero Asset Owners Alliance (NZAOA) and the Net-Zero Banking Alliance (NZBA) – a Matryoshka doll (Russian doll) of acronyms. 

These alliances are voluntary initiatives which convene the biggest financial institutions in the world, to set goals and strategies to reach net-zero in their business activities. They operate under the assumption that more information will help lead us to a net-zero financial system. 

However, NZBA has long been criticized by sustainable finance experts for being insufficient to drive change in the sector. After the latest updates to the NZBA guidelines, the initiative was criticized for providing “too much latitude for banks in deciding whether to take key steps that are central to credibly achieving portfolio alignment with science-based climate scenarios.“ This targets the core flaw of the GFANZ framework: guidelines are not enough. 

In recent weeks, major US financial institutions have pulled out of these Carney-convened alliances. The U.S. currently faces a hostile legal environment toward climate-aligned investing, which is being labelled as ‘woke’ or ‘leftist.’  US-based financial institutions are facing lawsuits for climate-aligned finance initiatives, which critics argue is driving up energy bills for Americans. Faced with costly legal battles, the pretence of climate action is no longer profitable for America’s biggest banks, which are some of the largest fossil fuel financiers in the world. This ignores the evident economic and financial devastation of climate change, as underscored by the wildfires in Los Angeles, which are estimated to cost up to $150 billion in damages. 

BMO, Scotiabank, National Bank, TD Bank Group, and CIBC have now followed suit, withdrawing from this global climate initiative. According to CBC, these banks cite “strategic realignment” and claim they can pursue their net-zero goals independently. Ironically, in recent climate finance hearings in Ottawa, these same bankers used their NZBA membership to argue against stronger climate regulations. Surely, according to their own logic, their withdrawal from this alliance indicates that it is the perfect time for regulation?

As prospective Liberal Party leaders design their platforms, they should take note of this moment. 78 per cent of Canadians support the government setting mandatory regulations to prevent banks and financial institutions from greenwashing their climate commitments. This is the case for all other parties; as we move toward an election, other parties too must introduce comprehensive regulations in their platforms. Whoever leads the next government must have a credible climate strategy, and commit to real regulation on climate-aligned finance. 

This means implementing the Climate-Aligned Finance Act (CAFA), which had been under Senate review before parliament was prorogued. CAFA had cross-party support and had been endorsed by sustainable finance experts from across the world. Implementing a bill similar to CAFA would be a litmus test for the climate plans of prospective leaders, signalling to voters their genuine commitment to addressing climate change head-on, and putting long-term good ahead of short-term profit.