Green Hushing in the Financial Sector: What the NZBA Exits Really Signal

In late 2024 and early 2025, the six largest United States banks, including Bank of America, JPMorgan Chase, and Morgan Stanley, withdrew from the United Nations-backed Net Zero Banking Alliance (NZBA), a coalition intended to align global lending portfolios with net-zero emissions by 2050. At face value, this coordinated exit appears to signal a retreat from sustainable finance and a reduction in climate ambition within the banking sector. However, such an interpretation overlooks the deeper dynamics that shape how institutions disclose and commit to climate goals. These withdrawals do not necessarily reflect a full abandonment of climate considerations, but rather a pullback from public climate commitments driven by political pressures, legal uncertainty, and the financial incentives embedded in current markets. This behavior reflects the same incentive pressures underlying the rising phenomenon of green hushing, in which firms deliberately limit the visibility of their climate commitments when the perceived risks of public disclosure outweigh the anticipated benefits.

A major reason for this pullback is how sustainability is defined and evaluated in today’s investment systems. Pucker and King (2022) show that ESG investing is still based on 'single materiality,' which evaluates the impact of environmental and social factors on firm profitability rather than the firm’s impact on the planet. This perspective means institutions receive limited financial reward for articulating bold, long-horizon climate targets, especially when those targets may appear to constrain lending flexibility or elevate transition-risk exposure. Public commitments such as NZBA pledges therefore create expectations that extend beyond typical investor evaluation horizons, potentially exposing banks to political criticism, legal challenge, or claims of inconsistency. Furthermore, misunderstandings about financial performance exacerbate this challenge. Many believe sustainability leads to lower returns, but the evidence is more nuanced. Pástor, Stambaugh, and Taylor (2022) find that green assets have outperformed in the past mainly because climate concern unexpectedly increased, not because “green firms are weaker.” They also show that green firms often have a “greenium” (green premium) because investors value their climate-risk protection, meaning lower expected returns simply reflect higher prices, not poor performance. Meanwhile, Hartzmark and Sussman (2019) provide strong evidence that investors do value sustainability: when Morningstar made sustainability ratings visible, investors moved tens of billions of dollars into higher-rated funds, even though those ratings did not predict better returns. This mix of evidence and misunderstanding creates a confusing environment in which firms may worry that public climate commitments will be interpreted as costly in the short term, even if they add long-run resilience.

Investor time horizons further shape how institutions approach public climate commitments. Starks et al. (2022) show that firms with predominantly short-term-oriented investors are significantly less likely to invest in or disclose sustainability initiatives, while firms held by long-horizon investors demonstrate stronger ESG performance and greater transparency. Large banks operate in environments dominated by quarterly earnings expectations, regulatory uncertainty, and political scrutiny, all of which reinforce short-term decision cycles. In this context, public net-zero commitments can appear misaligned with the immediate priorities of key stakeholders, even when banks continue to integrate climate and sustainability considerations internally. The decision to exit the NZBA therefore reflects a broader tension: the long-term nature of climate transition conflicts with the short-term incentives that currently drive financial market behavior.

The departure of major United States banks from the NZBA should therefore not be interpreted as a categorical rejection of sustainable finance. Instead, it highlights the persistent disconnect between the long-term nature of climate transition and the short-term incentives that govern financial decision-making. While there is no single solution, better aligning market incentives, disclosure requirements, and investor horizons with the long-term nature of climate transition would help reduce the pressures that contribute to green hushing. Such alignment would not eliminate these challenges entirely, but it would create conditions more supportive of a sustainable financial sector.

References

Hanson, I. (2025). Six big US banks pull out of Net Zero Banking Alliance. Global Trade Review.

https://www.gtreview.com/news/americas/six-big-us-banks-pull-out-of-net-zero-banking-alliance/

Hartzmark, S. M., & Sussman, A. B. (2019). Do investors value sustainability? A natural experiment examining ranking and fund flows. The Journal of Finance, 74(6), 2789–2837.

https://doi.org/10.1111/jofi.12841

Pástor, L., Stambaugh, R. F., & Taylor, L. A. (2021). Dissecting green returns. SSRN Electronic Journal.

https://doi.org/10.2139/ssrn.3864502

Pucker, K. P., & King, A. (2022). ESG investing isn’t designed to save the planet. Harvard Business Review.

https://hbr.org/2022/08/esg-investing-isnt-designed-to-save-the-planet

Starks, L. T., Venkat, P., & Zhu, Q. (2017). Corporate ESG profiles and investor horizons. SSRN Electronic Journal.

https://doi.org/10.2139/ssrn.3049943

The Economist. (2025). The remarkable rise of “greenhushing”. The Economist.

https://www.economist.com/business/2025/07/29/the-remarkable-rise-of-greenhushing