Rajasekharan K. and Tripti Sharma
Abstract
The transition to a low-carbon economy has placed financial institutions at the forefront of climate action, with banks playing a critical role in decarbonizing the global economy. The rise of net-zero banking represents a transformative shift in financial decision-making, aligning capital flows with sustainability goals to mitigate climate risks. As climate change poses systemic threats to economic stability, banks are increasingly committing to net-zero emissions by integrating environmental, social and governance (ESG) considerations into their lending, investment and operational strategies. The adoption of net-zero banking is driven by regulatory frameworks, investor pressure and stakeholder expectations, compelling financial institutions to reassess their risk models and portfolio exposures to carbon-intensive industries. Banks worldwide are setting ambitious targets to decarbonize their loan books and investment portfolios, with initiatives such as the Net-Zero Banking Alliance (NZBA). A critical aspect of net-zero banking is the reallocation of capital towards sustainable investments, including renewable energy, clean technologies and climate-resilient infrastructure. As banks continue to play a cardinal role in shaping the global economy, their commitment to decarbonization will be instrumental in achieving the broader objectives of the Paris Agreement and fostering a resilient, low-carbon future. Thus, the paper is an attempt to explore the rise of net zero banking and its global implications.