AT the Asian Banker Summit 2024 in Hong Kong, I boldly declared that 2025 could be the year Net Zero dies.
Such a development isn’t inevitable, but what was once described as “the climate crisis” is morphing into the climate-crisis crisis as investors and banks lose patience with the project and grow less shy about saying so.
The evidence is all around us.
BANKS ARE PULLING BACK
The climate policy retreat is accelerating as Citigroup, Bank of America (BofA) and Morgan Stanley this week joined an exodus from the Net-Zero Banking Alliance (NZBA).
Energy reality can bite.
For those not in the know, the NZBA alliance is part of the United Nations “Glasgow Financial Alliance for Net Zero” effort to conscript private capital to drive the left’s climate goals.
It was spearheaded by former Bank of England (BoE) Governor Mark Carney in 2021.
That was the year of peak climate arm-twisting.
The pandemic lockdowns did strange things to all of our brains.
We lost track of time, we held Zoom parties, made lots of buttery banana cake and kidded ourselves it was wholesome banana bread.
We also allowed ourselves to believe that banks could become superhero agents for change and fix the global climate crisis.
The alliance’s some 140 bank members have committed to align their lending and investment to a goal of zeroing out greenhouse gas emissions by 2050.
But the net-zero transition keeps getting set back.
In a 2023 modelling exercise I worked on with JPMorgan analysts, later updated in April with additional data covering project financing, the findings were far from inspiring.
We found no evidence (Net Zero evidence, if you will) that signatory banks had stopped lending to un-green borrowers.
Net Zero banks neither reduced credit supply to the sectors targeted for decarbonisation nor increased financing for renewable projects.
Not to worry, you might think.
Surely, “engagement” (to use the buzzword) with high-polluting borrowers helps those companies renounce their planet-destroying ways?
Once again, we suggested this as wishful thinking.
There was no evidence of reduced financed emissions through engagement.
Borrowers of Net Zero banks were no more likely to set decarbonisation targets or reduce their verified emissions.
In the end, we concluded that Net Zero commitments did not lead to meaningful changes in bank behaviour.
On an individual bank level, of course, several can point to convincing evidence that they have made a difference with dirtier companies or cut back hard on carbon-heavy lending.
BNP Paribas said it had withdrawn entirely from oil and gas bond deals in recent months.
More broadly, if Net Zero banks divested entirely from problematic companies, their lending books would look pristine but the planet would be no better off.
INDUSTRIES AND GOVERNMENTS ARE REVERSING COURSE
The dominoes are falling, one after another.
Automakers are slowing their electric vehicle production plans.
Utilities are extending the lifespan of coal plants to keep the lights on.
Off-shore wind projects are being cancelled because they aren’t economical.
The bank members are de facto committing to divest from fossil fuels by 2050, which violates their fiduciary duty to customers and investors. Vanguard in late 2022 pulled out of the Net Zero Asset Managers pledge.
JPMorgan, BlackRock and State Street Global Advisors last February retreated from a Climate Action 100+ compact.
Now the big banks are joining Goldman Sachs and Wells Fargo, which quit the alliance last month.
Net Zero is quickly becoming a much smaller club.
Even governments are quietly backtracking.
Recently, Britain’s Labour Party government discreetly started to revise its green electricity pledges, now saying the goal is 95 per cent renewable power in the grid, compared with the 100 per cent it promised as recently as last summer.
Prime Minister Keir Starmer’s administration also appears to be getting cold feet about electric-vehicle mandates as job losses mount in the auto industry.
Officials will review the mandate policy soon, with the potential of scaling it back.
Net Zero has brought down Chancellor Olaf Scholz’s administration in Germany.
His government couldn’t agree on how to continue paying ruinous net-zero subsidies, and voters faced mounting job losses, including in the automobile industry.
Former investment banker and centre-right politician Friedrich Merz, likely to replace Scholz after this February election, promises a significant rethinking of energy and climate policies.
If voters in Europe’s largest economy step back from Net Zero, the rest of the Continent won’t be far behind.
In America, following Donald Trump’s win in November the only question is how quickly the new administration can ditch previous commitments after Inauguration Day.
A dramatic uptick in U.S. fossil-fuel production, which seems possible and perhaps likely, will rank easily among the two or three most consequential developments for the global economy in 2025.
This comes after a terrible 2024 for Net Zero, meaning the ambition to achieve zero carbon dioxide emissions on a net basis by mid-century.
WISHFUL THINKING MEETS HARSH REALITY
This political project rests on two pieces of egregious flimflammery.
The first is that such a transition can be accomplished with no noticeable dent in prosperity or living standards.
Second, it matters much to the climate whether Europe (Asia or the U.S.) decarbonises in this way.
Both investors and bankers have started noticing, or at least suspecting, that neither of those things is true.
On the first point, we were told that Net Zero promised an industrial transition out of heavily carbon-emitting industries and jobs and into green ones.
Instead, some countries are experiencing industrial destruction as governments kill old jobs while the putatively green economy fails to create sufficient replacements.
Net Zero policies are likely to double the pace of annual job losses in high-emitting industries from 2019 through 2030 compared with the 2000-19 period, an analysis by the Organisation for Economic Cooperation and Development (OECD) found this year.
Those industries now are shedding jobs at a rate of around 2 per cent a year, compared with 1 per cent previously.
Industries accounting for 80 per cent of emissions employ 7 per cent of workers across OECD member countries.
Climate activists might point to this number to suggest the effects of carbon mitigation will be limited.
But proposing any other policy that jeopardised 7 per cent of a country’s jobs at one stroke would get you laughed out of the room.
Especially since, as the OECD also noted, high-emitting jobs tend to offer relatively high pay to older male workers with relatively less education and those laid-off workers who managed to find new work in green jobs tend to take substantial pay cuts.
As for the quality of life, high prices on electricity, natural gas and motor fuel are only the start.
The French government recently suggested that meeting its net-zero targets would require households to tolerate lower temperatures inside their homes in winter, smaller and lower-resolution screens on televisions and smartphones, and less vacation travel and that’s before you even get to ideas such as reducing meat consumption.
These two strands of thought converge in the electric vehicle fiasco, in which the push to force households to buy cars they don’t want is causing a highly visible and politically emotive industry to collapse.
If there’s one reason more than any other to suspect 2025 may be the year Net Zero finally dies, it’s that the dire consequences of aggressive carbon policies are having a visible and negative effect on both drivers and makers of cars.
None of this means the death of Net Zero will be easy, and nor is it a foregone conclusion.
People everywhere truly believe what they’ve been told to date about a “climate emergency.”
Many may not yet realise the household and industrial costs they hate are features of the climate agenda and not merely a sign that the transition has been mismanaged to date.
Meanwhile, an extensive and noisy activist and media class has built up around climate issues and won’t go gently into that good political night.
Still, it’s easier to see now than it was even a year ago what the Net Zero end game may be, especially in Europe.
And that’s worthwhile progress to celebrate this year.
Medecci Lineil has over a decade of experience leading a niche-focused team within Goldman Sachs’ investment banking division (IBD). His expertise extends beyond the bank, having been instrumental in establishing consultancy firms in Kuala Lumpur and Singapore, where he serves as a founding board member.
