Why Are Global Banks Retreating From 1.5°C Climate Targets?

The Net Zero Banking Alliance (NZBA), a UN-convened coalition representing more than 120 banks globally, has voted to loosen its commitment to the most ambitious climate target under the Paris Agreement.

The decision, announced today following a year-long strategic review, allows member institutions to move away from the goal of limiting global temperature rise to 1.5°C, in favour of broader alignment with “well below 2°C” targets.

While the NZBA’s leadership maintains that 1.5°C “remains the guiding star”, the vote marks a significant shift in the organisation’s posture at a time when scientific consensus continues to warn of the catastrophic risks of overshooting this threshold.

“We are halfway through the critical decade for action on climate, and we need all sectors, including banking and finance, to commit to moving the needle on emissions reductions,” says Shargiil Bashir, NZBA Chair and Chief Sustainability Officer at First Abu Dhabi Bank.

A broader, less binding mandate

The updated framework introduces greater flexibility, recognising what the NZBA describes as “a wider range of net zero pathways” that align with the Paris Agreement. 

The alliance now accommodates banks with exposure to a diverse set of markets, many of which operate in jurisdictions lacking robust climate policy or regulatory pressure.

This renewed mandate is designed to provide more practical support to banks navigating their climate strategies, focusing on client engagement and policy advocacy over strict emissions targets.

Critics argue that such changes undermine the credibility of corporate climate commitments. In a world where only 30% of major emitters have 1.5°C-aligned transition plans, the NZBA’s retreat reflects a broader recalibration across the private sector.

The financial pressures and political headwinds behind this decision

The decision comes amid rising economic and political headwinds. US and UK financial institutions have already begun scaling back their climate pledges.

HSBC recently delayed its net zero timeline by two decades, while US giants like Morgan Stanley and Wells Fargo have publicly softened or abandoned their 2050 targets.

The shifting policy environment, especially the resurgence of pro-fossil fuel rhetoric in the US, has made it harder for banks to justify aggressive near-term decarbonisation.

“The subsequent years have seen their minions try to deliver on those commitments — and realise it’s actually very hard because there’s a giant co-ordination problem,” says Simon Hallett, Head of Climate Strategy at Cambridge Associates.

Banks also face uncertainty around carbon pricing, regulatory clarity and market signals. 

For many, this has raised questions around fiduciary responsibility and the wisdom of investing heavily in decarbonisation if the 1.5°C goal is no longer within reach.

The legal and reputational risks of this decision

Despite these pressures, walking back commitments is not without consequence. Legal experts warn that companies could face litigation if they fail to clearly justify changes to their climate strategies.

“Acknowledging the science and the political backdrop, and acknowledging that 1.5C is looking increasingly unachievable… the courts would find that a compelling narrative,” explains Becky Clissmann, Lawyer at Ashurst.

Nevertheless, the NZBA insists its evolution is pragmatic, not a retreat. The alliance remains committed to supporting banks in meeting individual targets, even if those targets are now less uniform or less stringent.

“NZBA is uniquely positioned to provide practical support to banks navigating the net zero transition,” says Shargiil.

The implications for green finance

The vote may have wide-ranging implications for capital allocation across sectors. 

By deprioritising uniform temperature-based targets, banks could reallocate investment away from hard-to-decarbonise industries, or delay action until market or regulatory incentives align.

For advocates of climate-aligned finance, the outcome is a sobering reminder of the fragility of voluntary commitments. 

While the NZBA remains a platform for knowledge-sharing and sectoral collaboration, its shift away from 1.5°C alignment raises new questions about how the financial system will contribute to global decarbonisation — and at what pace.

It is clear that this decision will prove controversial.

“We are deeply disappointed that major banks have pushed the NZBA to water down its guidelines on 1.5C and climate targets even as we are seeing historic droughts and catastrophic floods related to climate change impacting lives, livelihoods and entire ecosystems across the globe,” says Jeanne Martin, Co-Director of Corporate Engagement at NGO ShareAction.

“Every 0.1 of a degree matters and the higher global temperatures get, the harder it will be to deal with these impacts, and the greater the financial risks for banks and their investors. 

“Instead of using their vast resources to weaken standards, banks should be directing them to achieve their climate goals and protect their long-term financial interests.

“Responsible investors must double down on pressure to hold banks accountable to their climate commitments and urge them to play their part in fast tracking the transition rather than delaying progress.”

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