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Who would have thought that antitrust provisions designed to promote fair competition could be weaponized and used against the drive to achieve net zero? It’s a perverse development in so many respects but this is the world the United States has entered and one that’s expected to tighten its grip as the Republican administration moves into office.
In truth, the rapid exit of all large US banks from the Net Zero Banking Alliance ( NZBA ) in recent weeks tells us little about the direction of travel regarding banks’ individual efforts to decarbonize their lending books and capital markets underwriting businesses. That’s work in progress and outcomes remain to be seen.
But because, as I understand it, the US – unlike the European Union – offers no protection against breaches of cartel and anti-competitive behaviour that might be presumed from affiliating with groups that demand sector-wide sustainability alignment, what the banks’ exits show is that discretion is the better part of valour and getting out of the line of fire and reducing litigation risk is probably a reasonable response.
The withdrawal of US banks and asset managers from organizations like the NZBA, the Net Zero Asset Managers Initiative ( NZAMI ), and Climate Action 100+ because of litigation risk has been out there for some time. For those seeking anti-ESG outcomes, affiliation with groups like the NZBA, which exists solely to marshal a sector-wide cessation of financing to fossil-fuel companies, draws close to or might cross the line under US legislation into collusion and anti-competitive behaviour.
Hence, allegations against members could be levelled just because being a member, it can be argued, infers actions against the interests of fossil-fuel companies. Even if the intent to limit financing to high carbon-emitting companies is positive, i.e., it’s intended to limit environmental damage caused by climate change, that doesn’t necessarily provide legal protection. As such, the exit of the US banks was no particular surprise; it just brought to the fore a long-running, often contentious debate about whether group-wide commitments imply collusion.
Even though NZBA rules are notionally voluntary, members’ CEOs are required to sign formal commitment statements that consign their banks to institute prescribed target setting and reporting. Under the auspices of the UN’s Principles for Responsible Banking, members have to align their financing activities with net-zero emissions pathways by 2050, including setting 2030 intermediate targets. Because the same alignments are shared by all members, it’s been jumped on by the anti-ESG lobby.
Formally signing up to agreed behaviours to reach shared goals had always taken membership beyond the reason most had assumed for joining: as a channel for leveraging PR benefits, basking in reflected glory or ( for some ) engaging in virtual signalling. No bank was ever going to join a group focused on net zero and exiting fossil-fuel financing without already having what it thought was a reasonable transition plan that stood comparison with those of other members and meant it could ride the net-zero wave.
Even though member banks always ran the risk that their efforts to move away from fossil-fuel financing or switch to transition financing might undershoot the overall move towards shared targets, it was no real surprise that NZBA membership rose to 140+, mainly large banks, after the group was launched in 2021 to great fanfare.
That said, while most European national champions signed up ( European banks account for over half the current global NZBA membership ), Chinese banks steered clear while the only US banks that bothered to go to the trouble of joining even to reap PR benefits were the large banks with international businesses. That is until Goldman Sachs, Wells Fargo, Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase all quit between December 6th and January 7th.
Mirroring asset management
A similar move has already taken place in asset management, where the likes of AllianceBernstein, Goldman Sachs AM, JP Morgan AM, Nuveen, PIMCO, State Street Global Advisors, Vanguard and others have abandoned Climate Action 100+ or NZAMI. Litigation risks here are not theoretical: in November, Texas and a coalition of 10 other US states, citing both organizations, sued BlackRock, State Street and Vanguard in federal court for “conspiring to artificially constrict the market for coal through anti-competitive trade practices". The suit alleges that the asset managers formed a cartel to rig the coal market and that their anti-coal activism violated antitrust laws.
“The investment cartel collectively announced in 2021 their commitment to weaponize their shares [in publicly held US coal producers] to pressure the coal companies to accommodate ‘green energy’ goals […] Texas will not tolerate the illegal weaponization of the financial industry in service of a destructive, politicized ‘environmental’ agenda,” screeched Texas attorney general Ken Paxton’s press release.
If that didn’t make the stance of the incoming US administration crystal clear, House Judiciary Committee chairman Jim Jordan, and Subcommittee on the Administrative State, Regulatory Reform and Antitrust chairman Thomas Massie certainly did. Their letter to over 60 US asset managers in December 2024 said they had uncovered evidence that financial institutions are “colluding with climate activists through initiatives like the GFANZ and the NZAM Initiative to collectively adopt and impose left-wing ESG-related goals, which may violate US antitrust law”.
The committee is demanding that the asset managers “answer for their involvement in prioritizing woke investments over their own fiduciary duties”. The letter dubbed NZAMI “a woke ESG cartel”.
EU guidelines offer protection
The situation in the EU is unlikely to develop along similar lines, and European banks approached by the media have said they have no plans to exit the NZBA. The EU’s horizontal regime, covering co-operation agreements between competitors, added a chapter on sustainability agreements in its 2023 revised version. According to a Latham & Watkins legal brief at the time, the guidelines clarify that antitrust rules do not interfere with agreements between competitors that have a sustainability objective.
The rules contain a “soft safe harbour” presumption whereby agreements that fulfil certain conditions fall outside the scope of the cartel provision. The framework text also includes clarifications that companies can take into account when assessing exemptions in the context of sustainability agreements. Companies can also seek informal guidance from the European Commission to make sure they remain compliant with competition rules.
