Basel Committee stands firm against US pressure to dilute work on climate risk

The group of Central Bank governors that supervise the financial rulemaking work of the Basel Committee have “unanimously reaffirmed” their determination to assess and manage climate-related financial risks – even after US regulators pushed to reduce the scope of a dedicated task force.

The group, dubbed the GHOS, met yesterday (May 12), when they agreed to “prioritise further analysis on the financial risk implications of extreme weather events” as part of a task force co-chaired by the European Central Bank’s Frank Elderson, and the Federal Reserve Bank of New York’s Kevin Stiroh.

In November 2023, the Basel Committee proposed new climate-related disclosures for global banks in order to increase financial stability in the face of extreme weather events and other climate change-driven impacts. 

(The Basel Committee has no formal supranational authority, and its decisions have no legal force, but about 70% of jurisdictions have now implemented the Basel III standards finalised in 2017 in response to the 2008 financial crisis, and many would be expected to make the climate risk disclosure framework mandatory.)

Prioritising climate risk impact analysis

Earlier this week, US regulators reportedly asked to dilute the Basel Committee’s climate risk task force and turn it into a working group – a move in line with the Trump administration’s dismantling of the country’s climate policies and research bodies.

But at the end of their meeting, the Central Bank governors released a statement saying that after a discussion on the proposed disclosure framework for climate-related financial risks, “the Basel Committee will publish a voluntary disclosure framework for jurisdictions to consider”.

In addition, the GHOS “tasked the Committee with prioritising its work to analyse the impact of extreme weather events on financial risks” – instead of diluting it like the US asked.

Basel III climate-related disclosures

The Basel Committee’s proposed disclosures include exposures to climate-related physical and transition risks by sector and by geography, as well as financed emissions, which banks would need to break down by scope and obligor, disclosing the methodology they used for calculations.

The Committee believes such disclosures could provide market participants with “an indication of banks’ exposure to climate-related transition risks and the related impact on their risk profiles”, and assist them in assessing “whether a bank adequately identifies, manages and monitors risks that may result from its financed emissions, and how it could be calculated”.