A growing number of U.S. state officials are ramping up pressure on leading climate initiatives, warning that corporate net-zero commitments may be crossing legal boundaries. In a bold move, attorneys general from 23 states have issued a formal request for information to the Science Based Targets initiative (SBTi), raising red flags over possible violations of antitrust and consumer protection laws.

The challenge comes at a pivotal moment for the climate finance community. As global regulators push for ambitious emissions reduction goals, this legal scrutiny could reshape how financial institutions pursue their net-zero targets particularly those that involve restricting financing for fossil fuel projects.

Focus on SBTi's Financial Institutions Net-Zero Standard

At the center of the controversy is the SBTi’s recently launched Financial Institutions Net-Zero (FINZ) Standard. Released in July, the standard aims to help banks, insurers, and investors align their activities with the 2050 net-zero goal by issuing clear guidance on how to manage fossil fuel-related exposure.

Among its key provisions is the requirement for financial institutions to adopt fossil fuel transparency policies. These policies would commit participants to phase out project financing tied to fossil fuel expansion, withdraw general financing from companies involved in coal development, and eventually stop financing oil and gas firms that pursue expansion beyond 2030.

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Allegations of Collusion and Market Manipulation

According to the state attorneys general, such broad commitments could amount to unlawful coordination. In their letter to the SBTi, the AGs argue that financial institutions may be forming “de facto alliances” that effectively restrict access to capital and insurance for companies in the fossil fuel sector. This, they argue, could breach federal and state antitrust laws designed to preserve open and competitive markets.

They suggest that by agreeing to a shared set of restrictions outlined by the FINZ Standard, these financial institutions may be “colluding to refuse services”—not through traditional backroom deals, but through what they call “third-party laundering.” This reference implies that the SBTi, though positioned as a neutral standard-setter, might be facilitating coordinated market behavior that restricts fair access.

Consumer Protection Risks and Greenwashing Claims

Beyond antitrust concerns, the AGs warn that SBTi-aligned companies may also be at risk of misleading their customers. Specifically, they argue that if firms make ambitious climate pledges that are unlikely to be fulfilled or that hinge on uncertain global cooperation they may be violating consumer protection laws through potential greenwashing.

The letter outlines the expectation that companies should disclose the real-world feasibility of achieving net-zero by 2050. Without near-universal government regulation or sweeping global behavioral shifts, the AGs contend, such targets may be unrealistic and misrepresented to consumers.

Pressure Mounts on SBTi to Disclose Operations

To support their inquiry, the attorneys general have demanded a broad set of internal documents from the SBTi. These include communications with member institutions, documentation on how the FINZ Standard was developed, and a detailed breakdown of insurance firms that have changed their practices based on SBTi guidance.

The letter also requests information about the SBTi’s funding sources and any influence the initiative may have had on underwriting decisions. The AGs are particularly concerned about the possibility that insurers could be denying coverage based on non-financial criteria such as emissions targets, which may contravene state regulations.

States with Pro-Fossil Fuel Laws Take a Stand

Some of the states represented in the AG coalition have passed laws barring companies from boycotting fossil fuel industries. These laws are designed to prevent banks and insurers from refusing services to energy producers based solely on environmental, social, or political considerations. The letter makes clear that any violation of these laws could trigger enforcement actions.

States such as Texas, Florida, and West Virginia have already acted against financial institutions they believe discriminate against fossil fuel companies. The SBTi investigation represents the latest escalation in this broader political and legal battle over ESG (environmental, social, and governance) commitments.

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Public Statements Add Fuel to the Fire

Iowa Attorney General Brenna Bird, who is leading the coalition, made the state’s stance clear. In a public statement, she accused the SBTi of attempting to bypass Congress and implement the Biden administration’s climate agenda through backdoor coordination.

Bird argued that efforts to restrict fossil fuel financing would harm essential industries in her state, from agriculture to manufacturing. She warned that such policies could drive up the cost of food, energy, and consumer goods while threatening national energy security.

Climate Policy at a Crossroads in the U.S.

This legal backlash comes at a time when voluntary climate commitments are playing a major role in global financial systems. Organizations like the SBTi have helped hundreds of companies set science-based climate goals, providing third-party validation to ensure those goals meet international benchmarks.

However, the U.S. legal landscape appears increasingly divided. While blue states support net-zero initiatives and ESG disclosures, red states are aggressively challenging their legality. This tension creates uncertainty for financial institutions caught between regulatory expectations and political headwinds.

The Path Ahead: Scrutiny or Shutdown?

The outcome of this challenge could significantly impact how companies and institutions structure their climate goals. If the AGs succeed in proving that net-zero standards are being used as tools for market manipulation, it could result in fines, operational restrictions, or even legal injunctions against certain ESG frameworks.

On the other hand, if courts uphold the legitimacy of initiatives like the SBTi, it may reinforce the authority of non-governmental standards as legitimate tools for corporate climate action.

For now, the SBTi has not publicly responded to the AGs' letter, but pressure is mounting. As climate action becomes more politicized, the legal framework for corporate net-zero strategies is being tested and the results may define the future of responsible investing in the United States.

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