Basel Committee proposes climate disclosure rules for large banks

December 4, 2023|Written by Moriah Costa|Basel Committee on Banking Supervision

Large banks may need to report emissions that are tied to their lending and investment activity.

A proposal from the global watchdog, the Basel Committee on Banking Supervision, would require detailed information on the impact of climate change on banks to help investors and regulators assess transition risk.

“Physical and transition risks can have wide-ranging impacts across sectors and geographies that result in financial risks to banks via micro- and macroeconomic transmission channels, potentially affecting the safety and soundness of banks and the stability of the broader banking system,” the committee wrote in its consultation paper.

The committee is proposing both qualitative and quantitative changes to its Pillar 3 rules, which lay out the public disclosures banks are required to make. The current proposal would include disclosing scope 1, 2 and 3 emissions, covering direct bank emissions and indirect emissions. While Basel rules are not legally enforceable, they are considered best practices in the industry.

The Basel committee is hoping to get feedback on which reporting mechanisms would make it easier for regulators to assess risk. Industry stakeholders are asked if banks should disclose details of things like governance structure, strategy, risk management, and concentration risk, including if banks should disclose their material exposure to transition and physical risk.

In addition, the committee is also considering disclosure of forward-looking information, which would be non-compulsory and allow investors to assess the transition activities of banks. Other proposed disclosure areas include real estate, financed emissions and facilitated emissions.

Based on the feedback, some changes may be mandatory while others would be at the discretion of national banking regulators. The proposed changes are up for consultation until 29 February 2024. The committee noted that banks may have challenges in obtaining the necessary data and “aims to incorporate a reasonable level of flexibility into a future framework”.

The proposals offer more detailed disclosures than those offered by the International Sustainability Standards Board (ISSB) and are meant to complement the board’s climate standards. However, not all countries apply the ISSB disclosures.

It’s also unclear how the proposed disclosures would fit into the EU’s recent corporate climate disclosure rules or the US Securities and Exchange Commissions’ (SEC) long-awaited climate rules. Lobby groups have pushed against including financial institutions in the EU’s climate accountability rules, while the SEC has faced heavy backlash from companies who don’t want the regulator to include scope 3 emissions in its rules.

This page was last updated December 4, 2023

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