What is the Basel Committee on Banking Supervision?

The Basel Committee on Banking Supervision is a financial regulatory body with 45 members across 28 jurisdictions, including the U.S., Europe, and China. The BCBS doesn’t have legal authority to enforce banking policies, but its decisions heavily influence global banking.

In mid-May, an announcement from the BCBS signaled that the regulatory body had softened its stance on climate-related risk disclosures, which it says will be “voluntary” under Basel III, an international agreement introduced in response to the 2007-09 economic crisis. In the U.S., approximately 8.7 million jobs were lost, per the U.S. Bureau of Labor Statistics.

Basel III aims to prevent another financial crisis and protect consumers’ deposits by ensuring banks are prepared to withstand challenges that come their way — and experts agree that the effects of a warming climate, such as supercharged extreme weather, threaten financial stability.

Why are analysts alarmed?

The Group of Central Bank Governors and Heads of Supervision — the oversight body of the BCBS — says that it will continue to analyze the financial risk implications of extreme weather. However, experts warn that it is only part of working toward a resilient financial system.

Ben Cushing, the Sierra Club’s sustainable finance campaign director, told Inside Climate News that other considerations include stranded dirty fuel assets as the world transitions to nonpolluting, renewable energy, changing consumer preferences, and regulatory changes.

Experts say that classifying climate-related disclosures as voluntary could undermine transparency in financial systems and leave us less prepared to deal with climate-related challenges — even as banks continue to invest in dirty energy projects, which account for most of the heat-trapping pollution causing global temperatures to rise.

“It could be a big step back from dealing with a global financial stability threat,” said Anne Perrault, senior climate finance policy counsel at Public Citizen. “If we’re not working together to solve this global commons issue, it undermines the ability to manage systemic risk.”

How the lax regulations could impact the U.S.

Inside Climate News reported that the BCBS announcement came after months of “quiet lobbying” by U.S. financial regulators to scrap broad, mandatory climate risk disclosures.

In the long term, the push to weaken coordination could leave the U.S. disempowered globally as regulators from Europe and China step in. Danielle Fugere, president of the shareholder advocacy group As You Sow, said investors may also see U.S. assets as less relevant and more volatile if U.S. systems fail to adhere to climate regulatory frameworks.

“If we’re failing to address climate risk, those assets are then more risky,” Fugere said. “The rest of the world shouldn’t be held back.”

“Watered-down standards won’t protect our financial system from the growing fallout of climate change,” added Cushing.

You can support a more resilient financial system by understanding climate-related challenges and investing in green projects.

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