Japanese banks leave NZBA – Green Central Banking #JapanFinance

Membership in the Net Zero Banking Alliance (NZBA) continues to dwindle, as Japanese banks have followed an exodus of US and Canadian firms from the voluntary climate group.

Mizuho Financial Group is the latest Japanese bank to withdraw from the NZBA, meaning five out of six Japanese banks in the alliance have left.

The withdrawal from the NZBA could have a significant impact on Japan’s efforts to reduce financed emissions, said Yuki Tanabe, programme director at the Japan Center for a Sustainable Environment and Society. The banks have said they will reduce their emissions with their own initiatives but “I cannot believe that message from the banks”, he said.

While some Japanese banks may have some exposure to US assets and investments, “in many cases, they don’t really have a very strong exposure to the US” so there is no clear reason why the Japanese banks are following their US counterparts, said Sayuri Shirai, a professor at Keio University and former policy board member at the Bank of Japan (BoJ).

But it’s also not the first time Japanese institutions have followed the US in leaving a climate commitment group – last year several Japanese insurance groups left the Net Zero Insurance Alliance after several large insurers defected due to US Republican pressure.

Although the exiting banks have said they will keep their emissions goals, Japanese banks continue to lend to fossil fuel companies, with Tokyo-based Mizuho being the second largest bank funding fossil fuel financing in 2024 according to the annual Banking on Climate Chaos report.

“There are significant gaps between [banks’] 2030 goals and current financial emissions,” said Tanabe.

One of the issues is that the Japanese government has been slow to phase out coal plants, which means financial institutions don’t have an incentive to stop funding dirty energy, said Shirai.

Although Japan’s financial regulator released an ISSB-aligned disclosure standard in March, with all listed companies required to report climate-related information, the government has included controversial technologies like carbon capture and green hydrogen in its green bonds.

“When we talk about transition finance in Japan, it includes electricity based on fossil fuels and trying to reduce treatment. But at this moment, technologically and cost wise, it’s not feasible, according to various research. So there’s ambiguity here,” she said.

NZBA membership under pressure

The NZBA has been under pressure since December when Wall Street banks decided to leave, sparking questions by some about the effectiveness of voluntary climate commitments. With over 140 banks at one time, the alliance now only has 129 members in 44 countries.

The alliance has asked members to vote on altering the current commitment for financing to be aligned with a maximum temperature rise of 1.5ºC with a public announcement expected in April.

The focus of the climate commitment group remains unchanged, an NZBA spokesperson said.  Discussions on the group’s future framework have been underway for close to a year, they said, declining to comment on the details of the proposed vote.

“I can confirm that 1.5ºC will remain the guiding star of NZBA, in alignment with the Paris Agreement. The focus of NZBA remains to support members’ efforts to finance the transition to a net-zero emissions economy,” they said.