Basel Committee Renders Climate Risk Disclosure Optional for Bank Regulators
The big banking regulations group spoke out about climate risk disclosure on Friday. They said banks may opt to comply or not, since the U.S., for one, chose not to do so. The Basel Committee on Banking Supervision, with regulators and chief executives of major banks from the G20 and beyond, said that it remains a matter for local law to decide whether banks should disclose climate risk, something that has been a subject of discussion for some time.
The committee said, "It is recognized that the data about climate risks can change and improve, and it therefore makes sense to allow some room for change in the final rules." Policymakers and regulators throughout the world are still debating how much climate change should factor into legal and large bank planning. According to analysts, this debate will determine what is decided in the future.
The plan calls for banks to assess how climate risk may affect their capital requirements and levels of risk and to devise mitigation measures. It considers "physical risk," such as floods and heatwaves, and "transition risk," which includes climate regulation changes affecting farming. European leaders are, in fact, bolstering their initiatives for the climate-risk-related areas, with the European Central Bank at the forefront.
In January, the Federal Reserve exited the Network of Central Banks and Supervisors for Greening the Financial System, while some large U.S. banks have been dropping out of climate goals.
The new plan follows a long consultation that saw several modifications to Basel's first draft issued in November 2023, said the Basel Committee. They also note that the plan remains voluntary and formally removes the Basel Committee's recommendation that banks disclose the carbon emissions associated with their financial intermediation and trading activities, termed "facilitated emissions."
The committee also stated that it will continue monitoring developments around these disclosures and other approaches being used by banks to measure their activities, together with considering whether amendments to the plan may be warranted further on.
