Goldman Sachs confirmed media reports that it would exit the Banking Alliance for Net Zero, a coalition formed to promote cuts to greenhouse gas emissions. Most news reports linked Goldman’s decision to the political environment in the U.S., where companies are facing pressure to end initiatives on climate, diversity and other ESG matters.
The reality is more complex.
First, Goldman probably concluded the Alliance had outlived its usefulness. It was formed in 2021 amid a burst of enthusiasm about the power of the financial sector to fight climate change. Member banks agreed to set targets and make transition plans for reducing emissions related to their financing activities, reaching net-zero by 2050.
That sort of pledge wasn’t much to ask in 2021. Many banks at the time were eager to show a commitment to addressing climate change amid demands from shareholders and activists. And it worked. By 2024, the Alliance had grown to 145 banks in 44 countries.
But after a fast start, progress flagged. An October 2024 update from the Alliance indicated many banks had set targets and published transition plans, but a lack of climate data was impeding progress. That fits a common pattern for voluntary industry efforts. Early gains are easy and involve little expense or effort, but the hill gets steep after that.
Goldman of course was one of the banks that published its plans within the framework of the Alliance. Indeed, its recent sustainability report described these efforts, and a separate TCFD report offered a detailed discussion of the firm’s governance, metrics and management of its climate risks, as well as a roadmap for reaching its net zero targets.
At the same time, the political heat around climate and ESG was rising. In addition to scathing rhetoric from Republicans in Congress, state legislatures threatened to ban financial firms over their ESG activities. Those threats prompted several large financial firms to leave similar net zero alliances for insurers and asset managers.
But beyond politics, the landscape changed in other ways since the Alliance was formed, which probably shaped Goldman’s thinking, too.
Energy demand was one. A revised IEA outlook for energy demand published in October showed a sharp rise in expected electricity needs, mainly from data centers the tech sector is building at a furious pace. Renewable power will meet some of the growth, provided solar, wind and other clean-power facilities – and the transmission grid – can be built quickly, but some use of fossil fuels, like natural gas, to meet rising electric demand seems all but inevitable. If Goldman finances those gas projects, keeping to the Alliance’s net-zero pledge would be difficult.
Second, climate regulations arrived. They’re no longer a distant prospect, and regulation trumps voluntary standards like those formulated by the Alliance every time. Unlike 2021, when companies faced few actual rules on their carbon emissions or financial reporting, today there are regulations, led by the European Union, that global companies must follow. So while the SEC’s climate-disclosure rule is almost certainly dead, U.S. companies are preparing to comply with European Union climate rules. Goldman will be among them.
So while Goldman’s step is bad news for an voluntary climate alliance, it could mark the start of better disclosure, transparency and comparability for climate risks and financing activities.