Big Banks and Sustainability: What’s the Real Story

Big Banks and Sustainability: What's the Real Story?

Jim Madden, CFA, Tony Tursich, CFA, and Beth Williamson

• The last of the six major US banks recently exited the Net Zero Banking Alliance.
• These departures may have created a buzz, but we caution investors against being misled by the noise. The banks themselves, via varying statements, maintain they are committed to reducing their carbon footprints, financing the energy transition, and supporting sustainable development.
• Sustainable investors have numerous options to engage with the growth opportunities in the global financial services sector.
• The Calamos Sustainable Equities Team continues to identify opportunities to invest in banks with high-quality growth fundamentals-companies that are global leaders because of their alignment with secular trends and ability to manage financial and nonfinancial risks.

The Net Zero Banking Alliance (NZBA) has received yet another blow. At the end of 2024, JP Morgan became the last of Wall Street's biggest banks to abandon the industry's largest climate-finance alliance, following Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc., and Wells Fargo & Co. Industry watchers generally believe these exits are motivated-at least in part-by a desire to avoid a backlash in the wake of President Trump's return to office.

Although the US banks' departures from NZBA are headline-grabbing, we believe the alliance can continue to exert influence globally, and it may well enter a new chapter with its ambitions focused on different priorities. On balance, the alliance saw more signatories join in 2024, with new members coming from Australia, Italy, Greece, the UK, and Norway. With the exit of JP Morgan, as of January 7, 2025, 142 members remain, with European banks especially well represented.

More importantly, these banks' withdrawals from the alliance do not necessarily mean corporations are abandoning sustainability even if they step away from high-profile committees and organizations. For example, over recent months, the departing US financial institutions have clearly expressed their support for sustainable efforts. JP Morgan noted that it would "remain focused on pragmatic solutions to help further low-carbon technologies while advancing energy security," and its asset management division will remain part of the affiliated Net Zero Asset Managers Initiative (NZAMI). Similarly, Morgan Stanley and Citigroup went on record earlier this month, affirming their commitments to net zero, despite their decision to leave the alliance.

Finally, although the six banks that left the alliance are undoubtedly heavy hitters, they do not represent the global financial sector. Their decision to leave the NZBA does not mean that opportunities for sustainable investing in the financial sector will disappear.

When it Comes to Identifying Great Businesses, Here's What We Bank On

We believe companies that manage nonfinancial risks, including those related to sustainability, are better positioned than those that do not. We have analyzed banks utilizing our proprietary research process for more than 25 years, certainly long before the launch of the NZBA. As such, a bank's participation in the alliance or lack thereof hasn't ever influenced our selection criteria.

Instead, we are guided by our materiality thesis covering diversified banks and our proprietary criteria. Specifically, we seek to understand-at a company level-how a financial institution's individual commitments reflect the integration of sustainability factors into its lending processes, lending portfolios, and exposure to high-risk sectors. We also carefully consider a company's governance, exposure to any scandals, or illegal behavior.

Given the team's reliance on our own processes, which weigh fundamentals and sustainability equally, our investable universe has never included the largest six US banks: JPMorgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley. Instead, our pursuit of global leaders with strong financial and nonfinancial business strategies has led us to exciting companies in the financial sector, such as:

DNB Bank, ASA
DNB Bank is a leading retail bank in Norway, operating like a true utility bank, prioritizing profitability over growth and increasing capital returns. With the Norwegian government as its largest shareholder, the bank benefits from reduced overall risk. DNB aims to reduce its oil and gas exposure, resulting in a more robust and diversified loan book, and reports on its financed emissions show year-on-year improvements. Additionally, DNB employs risk-based exclusionary screens to limit or avoid investments in companies associated with environmental or human rights abuses, cluster munitions, nuclear weapons, pornography, tobacco, coal, and oil sands.

Grupo Financiero Banorte
Banorte is one of Latin America's largest and most profitable banks and acts as a regional money center lender. It focuses on consumer lending, showing strong growth in credit cards and mortgages, which, along with higher deposits, boosts its loan capacity and reduces funding costs. The bank has successfully transformed into a digital bank while maintaining a physical network, allowing it to compete with fintech companies in Brazil. Over the years, Banorte has made significant progress in its sustainability and climate change initiatives with an increasing loan portfolio focused on renewable energy, sustainable construction, wastewater treatment, and agriculture.

KBC Group, NV
KBC is a market share leader in Belgium and Central and Eastern Europe, known for its local market expertise and strong customer ties. A high-quality and resilient operator, KBC's growth fundamentals have been compelling versus peers. By the end of FY2023, KBC's investments in Responsible Investing funds increased to EUR 40.7 billion (US $43.1 billion), representing 41% of its total assets under distribution. The bank continues to show year-on-year growth in its lending portfolio, contributing to environmental objectives with increases in financing for renewable energy and biofuels, energy-efficient housing mortgages, and low-carbon vehicles. In 2023, KBC updated its energy policy to allow financing of renewable energy projects by integrated energy groups still engaged in coal-based activities, provided these projects are strictly ring-fenced. This policy change enables KBC to play a more significant role in financing the energy transition in Europe.

In Closing

Given the shifting climate in Washington, we expect more public announcements from large companies similar to those that we've seen from the major US banks. That said, we invest in companies-not committees or initiatives. While industry groups and alliances can give us insights into a company, what matters most are business strategies, alignment with enduring growth themes, company fundamentals, risk management, and of course, results.