U.S. regulators led by the Federal Reserve have refused to support a plan by the Basel Committee on Banking Supervision to force financial institutions to disclose climate change risks, according to people familiar with the matter.
It’s not impossible that the U.S. could change course, but the Basel committee has already significantly watered down its proposal to suit the Fed, said the people, who requested anonymity to discuss private discussions. The group says it is currently preparing for a scenario in which efforts to add climate change considerations to global bank reporting regulations could be shelved indefinitely.
The Basel Committee is scheduled to meet on November 19 to discuss the disclosure framework again.
As the world awaits the return of Donald Trump to the White House following his decisive election victory, a major plank of the global framework aimed at responding to rapidly rising temperatures has been dismantled. Supporters of climate change policies are watching in dismay. President Trump has vowed to withdraw the United States from the Paris Climate Agreement again, a prospect that is expected to overshadow talks at the COP29 summit in Azerbaijan.
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There is no indication that the Fed’s actions are influenced by the specter of a Trump presidency. Indeed, Chairman Jerome Powell has explicitly advocated the Fed’s independence. But the developments have further heightened concerns about the role the world’s largest economy plays in shaping the world’s climate change agenda.
The US position stands in stark contrast to how regulators on the other side of the Atlantic are tackling climate change. The European Central Bank has repeatedly told the region’s financial institutions that they must meet clear expectations on how to address climate risks or face fines. Meanwhile, in the US, Chairman Jerome Powell said it would be a “big mistake” to expect banking regulators to “lead the fight against climate change”.
Exchanges between the Fed and other Basel committee members and the coordination of the so-called Pillar 3 disclosure proposal are detailed in documents seen by Bloomberg News and conversations with senior officials who requested anonymity due to confidentiality. Based on. of the problem.
The U.S. decision was made known to other Basel Committee members in a September telephone conversation by Fed representatives. The person said on the conference call that the U.S. appreciates efforts to create a climate disclosure framework for banks, but is not ready to support a compromise draft.
Spokespeople for the Fed, ECB and Basel Committee declined to comment. The committee said it expected to publish revised or final proposals in the second half of this year after considering feedback received during the consultation.
The Basel Committee, which represents central bankers and financial regulators from about 30 countries, would have approved the proposal in September without U.S. opposition. Apart from the Federal Reserve, the United States is represented by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
Spokespeople for the FDIC and OCC declined to comment.
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Bloomberg reported in April that the Fed’s concerns led the Basel Committee to limit the scope of its ambitions on its climate rules framework. In July, Mr. Powell was asked by the House Financial Services Committee to comment on the Bloomberg report. His response at the time made it clear that the Fed has no mandate to “accelerate the energy transition or address climate change.”
Instead, Powell cited the Fed’s “very limited” authority to ensure that the financial institutions it supervises are “capable of recognizing and managing risks” rather than forcing them to adopt a transition plan. .
In contrast, many European banks are required to disclose the alignment of their credit portfolios with the Paris Agreement. The ECB assesses banks’ compliance with disclosure requirements known as Pillar 3 and publishes some information that allows comparison of key risk indicators.
Those differences in approach have led to heightened tensions within the Basel committee over the past year, according to people familiar with the matter.
The Basel Committee cannot force countries to implement its standards. Rather, its power lies in arriving at a baseline of global rules that individual regulators develop and enforce. For example, jurisdictions around the world pushed through various additional capital requirements agreed by the Basel Committee after the 2008 global financial crisis.
The Basel Committee’s general climate forum is the Task Force on Climate-Related Financial Risks, co-chaired by New York Fed’s Kevin Stielow and ECB Director Frank Elderson. The TFCR takes a holistic view, considering all available tools across the three pillars of the Basel framework: capital requirements, supervision, and disclosure.
Basel’s original proposals on climate risk disclosure for banks were put out for consultation last November, and comments led the TFCR to draft a revised version in time for a meeting in September this year, according to documents seen by Bloomberg News. did.
Among the key concessions already won by the United States is the decision to halt discussions on introducing industry-wide capital controls, known as Pillar 1, as a regulatory tool to address banks’ climate risks. Ta. The latest concessions made in September relate to proposed risk disclosure through Pillar 3, according to documents obtained by Bloomberg. Specifically, all quantitative climate disclosures, such as funding emissions and physical risk exposures, will be subject to jurisdictional discretion, something the United States has been lobbying for.
Other members of the Basel committee were dissatisfied with the concessions the United States had won, according to people familiar with the matter. According to people familiar with the matter, the Bank of Japan and the Bank of Italy also expressed dissatisfaction with the U.S.’s insistence that key information disclosure be voluntary.
Many members of the Basel Committee, including representatives of the ECB and regulators from France, Germany and Sweden, wanted to introduce the concept of a review period, a step that would pave the way for stricter rules in the future. .
Spokespeople for Deutsche Bundesbank, Bank of France, Bank of Japan, Riksbank and Bank of Italy declined to comment.
Tensions over climate regulation are rising after Mr. Powell’s team also watered down additional capital requirements, known as the “Basel III endgame,” after a wave of resistance from Wall Street. In September, the Federal Reserve announced sweeping changes to its proposed bank capital rules, cutting in half the expected impact on large U.S. banks and exempting smaller lenders from most of the measures.
The backlash against Basel’s climate framework follows more than two years of Republican-led legal attacks on financial companies that incorporate environmental, social, and governance (ESG) factors into business and investment decisions.
Basel Committee Chairman Eric Tedine said in a September conference call where the Fed made its position clear that given the impact such an outcome would have on financial institutions, a compromise would be better than no deal at all. said it was good. One person familiar with the matter said the committee’s credibility was low. A Basel spokesperson declined to comment.
Until the last moment, European officials had hoped that efforts at compromise might help the Basel Committee bring the United States to its side. If the committee fails to revive the proposal at its November meeting, it is unlikely to meet its stated goal of presenting an amended or final draft in the second half of this year.
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