Net zero crisis: the financial sector hesitates but science persists
Article by Professors Yulia TITOVA & Hugues CHENET
09/09/2025
6 min
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At the beginning of 2025, while the world was experiencing record temperatures, major US financial institutions such as BlackRock and J.P. Morgan were withdrawing from net zero alliances under the threat of President Trump’s anti-climate shift and the ensuing legal action. Other players soon followed suit, and some European banks began to reevaluate their participation. Do these developments spell the end of net zero?
Nothing could be less certain. European regulations supporting net zero, technological advances in low-cost, low-carbon energy, and a growing awareness of the risks associated with climate change as they materialize are key allies. But above all, Net zero remains a scientific imperative. Whether we like it or not, we will have to reach net zero greenhouse gas (GHG) emissions to stabilize rising temperatures. The only question is… “when?”
What is net zero? Concept, history, and progress
Institutional concern about climate change dates back to the 1970s, with the creation of the United Nations Environment Programme (UNEP), followed by the UNEP Finance Initiative between 1992 and 2003. The concept of net zero, however, is much more recent.
The link between global warming and cumulative CO2 emissions in the atmosphere was scientifically established in the late 2000s. In 2013, the Intergovernmental Panel on Climate Change’s (IPCC) fifth assessment report drew a drastic conclusion: to stabilize global temperatures, net CO₂ emissions from human activities must fall to zero. Net zero therefore assumes that every ton of CO₂ emitted into the atmosphere must be offset by removing the same quantity.
This idea underpins the 2015 Paris Agreement, in which countries committed to keeping global warming “well below 2°C” above pre-industrial levels and to pursuing efforts to limit the increase to 1.5°C. In 2024, this symbolic 1.5°C threshold was crossed. But net zero is not just one option among many; it is a physical condition for stabilizing the climate. Each temperature target has a corresponding time frame for achieving Net zero. It is always possible to push back the deadline if we are willing to mortgage part of humanity and life itself, and at the very least abandon the conditions that have allowed our civilizations to develop over the past ~12,000 years. But in any case, net zero remains a mandatory destination.
The net zero concept, with the Paris Agreement as its cornerstone, has spurred a wave of targets at various levels and more than 5,000 climate laws and policies. For its part, the financial sector has structured itself around the Glasgow Financial Alliance for Net zero (GFANZ)and its alliances, such as NZBA (banks), NZIA (insurers) and NZAM (asset managers).
The history of net zero
Graph. Status of net zero commitments by type of actor
How can Net zero be achieved?
Achieving Net zero requires massive reductions in emissions and the removal of CO2 from the atmosphere to offset unavoidable emissions. This transition therefore relies on socio-economic changes and technological advances, both on the demand side and on the supply side of goods and services.
Technological advances, including nature-based solutions such as wetland restoration, agroforestry and reforestation, as well as the continued rise in carbon prices, are making clean energy more economically competitive.
Increased funding for clean energy has helped to strengthen its capacity and drive down the cost of technologies such as solar panels and batteries.
But technology alone will not be enough. Even the most techno-optimistic IPCC scenarios call for a rapid phase-out of fossil fuels. CO₂ capture remains controversial, costly, complex and energy intensive. Demand will also have to be transformed, not just supply.
Finally, access to critical minerals is becoming a central issue in the energy transition. Demand for copper, lithium, rare minerals, and cobalt is expected to triple by 2030 and quadruple by 2040, which will inevitably raise other environmental issues. Recent discoveries, such as a major copper deposit in China, could help lower the cost of renewable energy… but this should not obscure the core of the problem.
Regulatory momentum, but regional divergences remain
In this context, regulation is an essential tool. In Europe, although the regulatory framework now appears weakened by political pressures and a growing desire for deregulation (notably through the Omnibus Directive which is currently under discussion), several key texts such as the CSRD, the green taxonomy and a climate indicator developed by the Banque de France are providing impetus for change. In China, despite a lack of transparency, the government is continuing its massive investments in clean energy and maintaining its stated goal of net zero by 2060. And as climate impacts worsen, the pressure will only grow. The Network for Greening the Financial System (NGFS), a network of central banks, points out that the cost of inaction will be much higher than the cost of transition.
Finance and climate: a complicated relationship
Given this context, why are financial institutions leaving Net zero alliances? Their withdrawal highlights the difficulties of integrating climate objectives into financial decisions.
Graph. Changes in the number of members of the NZBA (Net-Zero Banking Alliance) between May 2024 and March 2025.
Financial actors must reconcile their fiduciary duty (i.e. taking actions in the best interests of another person or organization) with their climate commitments, in a context where carbon-intensive assets remain attractive in the short term. The paradox locks in investment in high-emission sectors, increasing the likelihood of the very risks that these actors are seeking to avoid. However, a long-term interpretation of fiduciary duty should encourage an accelerated exit from fossil fuels. While legal disputes and fears of antitrust effects are slowing down net zero alliances, the climate challenges remain.
Climate change is a reality, regardless of opinions on the matter. It is already affecting the value of assets and poses a growing systemic risk. Embracing a net zero transition pathway helps reduce future physical climate risks, but also anticipates the shocks associated with these same risks, both physical and transitional, which will arise, probably abruptly.
Committing to the transition is not a pure cost, but also a strategic investment in sustainable economic opportunities. Some banks, particularly in France, are already beginning this shift by reducing their exposure to coal and oil. This shows that with a clear framework, institutions can evolve.
The future of net zero
Despite hesitation and slowing momentum, Net zero is not dead. It is being redefined, but it is not disappearing. It must become a credible plan, supported by adequate financing, strong political will, and ambitious regulation.
Article by Professors Yulia TITOVA & Hugues CHENET
