Caught in the Crossfire: The growing debate on debanking in New Zealand

Banks in New Zealand are increasingly caught in a tug-of-war between their environmental commitments and economic obligations. On one side, pressure mounts for them to sever ties with industries contributing to climate change. On the other, businesses warn that being “debanked” could lead to severe economic consequences—particularly in rural and carbon-intensive production sectors critical to the country’s economy. Recent cases, such as BNZ’s termination of services to the Gloriavale community and the phase-out of banking services for coal mining clients, have thrust this issue into the spotlight.

BNZ: Gloriavale and coal mining

In the recent Gloriavale debanking case, the Court of Appeal upheld BNZ’s right to terminate its 40-year relationship with the community, following the Employment Court proceedings which exposed exploitation of child labour for commercial benefit. BNZ terminated all Gloriavale’s banking services for breaching BNZ’s internal human rights policy, relying on its general terms and conditions allowing it to end customer relationships “for any reason”. The Court of Appeal decision sent a clear message that banks can unilaterally sever ties with customers on notice where their terms and conditions allow this.

This precedent is now playing out in other sectors. There has been an uproar at a political level at BNZ’s decision to progressively withdraw banking services from a coal mining client, culminating in account closures by 2030. The bank justified this move as part of its ongoing commitment to exit lending to coal mining in line with the Paris Agreement. The backlash from this decision has been swift, with NZ First Minister Shane Jones vowing to “do everything” to stop banks from imposing “luxury beliefs” on lawful businesses.

Banks’ climate dilemma

Banking litigation partner, Ben Upton, comments that “Banks are facing a classic ’damned if you do, damned if you don’t’ scenario. They face growing pressure from regulators, shareholders, and the public to meet environmental commitments and reduce exposure to fossil fuels and high emission businesses. However, they are also being told they have a social responsibility to support legal businesses that underpin the economy, with businesses—including petrol stations, farms, and mines— voicing fears of exclusion from essential banking services.” 

Finance Minister Nicola Willis has since expressed concerns about the possibility of banks all refusing to finance businesses that New Zealand needs and suggested calling bank chief executives back before the Finance and Expenditure Committee to explain their actions.

Déjà Vu: Lessons from AML compliance

Special Counsel Jo Lim says the current wave of debanking is reminiscent of how banks responded to the introduction of anti-money laundering (AML) legislation. When faced with high compliance risks, many banks cut ties with non-compliant or high-risk customers. “However, the key difference is that industries facing climate-driven debanking cannot easily reform or pivot away from their core business activities. AML compliance gave businesses a roadmap to address risk. With climate concerns, many businesses are facing the reality that their entire industry is now seen as the risk”.

Global trends driving the debate

The debanking debate is not unique to New Zealand. In the last month, six major US banks, including JP Morgan, Goldman Sachs, and Bank of America have left the Net-Zero Banking Alliance (NZBA), together with four major Canadian banks. When it was launched in 2021, NZBA members pledged to use global finance to drive emissions to zero, but that unity has fallen victim to the current political backlash against ESG initiatives and, no doubt the strong encouragement of President Trump to “Drill, baby, drill”. 

In contrast, Australian and New Zealand banks have so far remained committed to their climate targets, although pressure is mounting in Australia to loosen those goals. The Australian Liberal-National Opposition has floated the idea of regulatory intervention to prevent banks from withdrawing services from fossil fuel industries. NZ First’s caucus has agreed to introduce a similar bill in New Zealand, which is currently under development.

What’s next for New Zealand?

Further debanking cases are possible as banks continue to assess their exposure to carbon-intensive industries, but banks are also likely to be keeping a close eye on political developments. Businesses should be prepared for a future where ESG factors increasingly influence financial decision-making, while recognising that political changes can temporarily slow or reverse this trend. Taking ESG influence into account in your strategic planning and risk mitigation is essential, to put your business in a better position to weather the ups and downs.

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