Basel Committee resists US pressure to downplay climate risk

U.S. efforts to rein in the Basel Committee's focus on climate risks were met with a rare show of resistance this week, according to people familiar with the matter.

At a closed-door meeting that took place on Monday, the heads of the central banks and regulators that make up the Basel Committee on Banking Supervision rejected a proposal to dissolve the taskforce overseeing climate work, said the people, who asked not to be identified while disclosing confidential conversations.

The upshot is that the Task Force on Climate-related Financial Risks (TFCR) won't be disbanded, the people said. However, its long-term fate remains unclear, as TFCR now risks becoming a bargaining chip in future talks with the U.S. on Basel III implementation, they said. The U.S. has yet to adopt the final package of Basel III bank reforms, which other countries agreed to implement back in 2023.

It's the latest standoff amid disagreements within the Basel Committee on how to treat climate risk. While the European Central Bank continues to stress the importance of addressing the financial dangers posed by the fallout of a hotter planet, U.S. regulators led by the Federal Reserve have pushed back on efforts to make climate risk a focus of global financial rules. 

The future of the Basel Committee's climate work was discussed at Monday's meeting by its oversight body, the so-called Group of Central Bank Governors and Heads of Supervision, or GHOS, which is chaired by Bank of Canada Gov. Tiff Macklem. GHOS looked at several proposals on a new approach for climate work put forward by Erik Thedéen, chair of the Basel Committee. 

In a memo dated April 30 and seen by Bloomberg News, Thedéen suggested paths toward "resetting" the Basel Committee's work on climate risk, as part of an effort to bridge gaps within the group. A scenario that envisaged disbanding TFCR and replacing it with a lower-ranking working group — seen as a concession to U.S. demands — was rejected on Monday.

Spokespeople for the Basel Committee, the Federal Reserve and Thedéen declined to comment.

The TFCR, which is co-chaired by Kevin Stiroh of the Federal Reserve Bank of New York and ECB Executive Board member Frank Elderson, has since 2019 worked on a range of climate topics. These have spanned the three pillars of Basel regulation — capital requirements, supervision and disclosures.

Bloomberg News has previously reported that U.S. regulators led by the Fed have consistently pressured Basel to water down its climate program. And though the TFCR survived Monday's vote, the U.S. prevailed in its efforts to ensure that climate-related disclosures will be voluntary. Bloomberg News reported in November that U.S. Basel members had pushed to make sure disclosures wouldn't be mandatory. 

U.S. efforts to dilute Basel's climate work pre-date the re-election of Donald Trump, a self-proclaimed climate skeptic. Bloomberg News has previously reported that as far back as August 2023, the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. — three U.S. agencies represented on the Basel Committee — pressured Basel to weaken its climate program. 

U.S. authorities have scored several major concessions, including halting talks on introducing industrywide capital rules as a regulatory lever for addressing banks' climate risk. They've also ensured that so-called quantitative climate disclosures, such as financed emissions and exposures to physical risks, will be subject to jurisdictional discretion.

Fed Chairman Jerome Powell has said the Fed doesn't have a mandate "of fostering an energy transition or dealing with climate change" and instead has "very limited" powers to ensure the institutions it supervises "are aware of and can manage" the associated risks. Meanwhile, the ECB has been an avid supporter of more stringent climate requirements for European lenders.

Thedéen said in his April 30 note that existing "differences in perspective limit the potential scope of global standards."

In a statement released on Monday, the GHOS said the Basel Committee should continue "prioritizing its work to analyse the impact of extreme weather events on financial risks."