By Vijay Jayaraj

In a slow but steady retreat, the world’s most powerful financial institutions are abandoning their once-lauded climate pledges in the beginning of a long-overdue correction.

From BlackRock’s quiet exit to the mass defection of U.S. banking giants, the climate bandwagon is losing passengers. And what replaces it could finally bring a necessary focus on real-world developmental finance for both Western economies and the Global South.

In 2024, the U.S. banking sector staged a collective retreat from the Net Zero Banking Alliance (NZBA). Exiting the alliance were six of America’s largest banks – Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan Chase.

Their reasons: legal and fiduciary concerns, coupled with mounting pressure from Republican-led states accusing the banks of violating antitrust laws by coordinating climate policies that could limit the financing of fossil fuel enterprises.

Wells Fargo went further, explicitly dropping its pledge to achieve “net-zero” and stating it would instead “meet clients where they are in their chosen energy and transition strategies.” HSBC diluted its 2050 goals, acknowledging the impracticality of abrupt decarbonization.

In January, BlackRock – the world’s largest asset manager with approximately $11.5 trillion under management – left the Net Zero Asset Managers (NZAM) initiative. BlackRock’s exit was a body blow to Glasgow Financial Alliance for Net Zero (GFANZ), the U.N.-backed coalition launched in 2021 to align institutions with decarbonization goals.

These reversals coincided with Trump-era policy shifts: rescinding clean energy subsidies, green-lighting fossil fuels and prioritizing energy security. Republican-led lawsuits, such as the one filed by Texas Attorney General Ken Paxton against BlackRock, Vanguard and State Street, alleged that climate-focused investment strategies suppress industries like coal. These political headwinds have made finance executives wary of aligning with the likes of GFANZ

On April 29, the Royal Bank of Canada (RBC) quietly abandoned its $500 billion commitment to decarbonization efforts. The reason? Canada’s updated Competition Act now treats exaggerated environmental claims as potential greenwashing – a criminal offense.

The delicious irony is that this announcement came just one day after Mark Carney – former U.N. climate finance czar and a founder of GFANZ – was elected Prime Minister of Canada.

Carney’s GFANZ, launched at COP26, boasted 450 firms managing $130 trillion. Today, it’s a ghost town. RBC’s exit epitomizes the alliance’s collapse. GFANZ demanded banks phase out fossil fuels. Instead, banks phased out GFANZ.

RBC said the new legal framework made it “infeasible” to quantify progress on the goal without risking regulatory breaches. The entire edifice of net-zero commitments – built on ambiguous projections and unverifiable metrics – has begun to collapse under the weight of the laws meant to enforce them.

Crying “betrayal,” critics of banks and asset managers departing climate coalitions lament a “backward slide.” But how could regulating atmospheric CO₂ reasonably be the job of your neighborhood bank?

Wall Street was never meant to be an environmental regulator. It is supposed to allocate capital where it generates value. And the green agenda, riddled with faulty science, speculative technologies and political overreach, simply does not qualify as valuable. The green exodus has exposed the folly of policymakers at the U.N. and other global institutions that coerced financial giants into a quixotic crusade bereft of rationality.

The world’s big banks have handed nearly $7 trillion in funding to the fossil fuel industry since 2016, the year when the Paris Agreement was formed to decapitate fossil fuel expansion. Critics decried this as an abandonment of climate goals, but for 2.2 billion households globally, it meant affordable energy and economic stability.

The exit from climate politics heralds a crucial return to prioritizing genuine economic development. Sluggishness in many Western economies is, in part, a consequence of misallocation by climate hysteria.

Some have questioned whether this shift is permanent, noting the powerful political forces that have driven the climate industrial complex may be disinclined to surrender. However, there is no doubt that to the extent financial institutions unshackle themselves from impractical climate pledges, they can refocus on supporting innovation, infrastructure and industries that generate real growth and jobs.

This commentary was first published at RealClearEnergy on May 28, 2025.

Vijay Jayaraj is a Science and Research Associate at the CO₂ Coalition, Arlington, Virginia. He holds an M.S. in environmental sciences from the University of East Anglia and a postgraduate degree in energy management from Robert Gordon University, both in the U.K., and a bachelor’s in engineering from Anna University, India.