US pressure for laxer climate rules puts world at greater financial risk, experts say

The US has long had a significant influence on global negotiations and Trump’s second administration is no different. But this time US leverage on climate issues seems to be waning, as the push by US officials for an anti-climate agenda has been increasingly rejected.

But even as other nations attempt to press ahead with climate negotiations regardless, effects from the US retreat may ripple out and frustrate global efforts to manage the financial risks stemming from climate breakdown.

Signs of a pushback against US recalcitrance are starting to be seen. Reports emerged of US pressure at the Basel Committee on Banking Supervision to completely drop its work on climate change mitigation, a measure that was largely rejected.

Meanwhile, the US has drawn the ire of other central bankers and finance ministries, including France, Canada, South Africa and the Netherlands. The chair of the Financial Stability Board was forced to call a timeout after officials clashed over comments from the US Treasury’s interim undersecretary that climate should only be a focus if there is an imminent financial stability risk.

But even as other nations forge ahead on putting in place regulatory measures to combat climate change risk, US backtracking on green policies could have grave financial consequences for the rest of the world, experts say.

In its April insurance risk dashboard, the European Insurance and Occupational Pensions Authority cited the US withdrawal from the World Health Organization and climate agreements such as the Paris Agreement and the Network for Greening the Financial System as a potential increase in ESG risks for insurers.

“The withdrawal of the US from the World Health Organization and from the agreements on climate undermine the achievements of future objectives in those fields, opening the door to more extreme pandemics and natural catastrophes. Larger losses stemming from these events will make their insurability not economically sustainable by the industry reducing the offer and increasing its cost,” EIOPA stated.

Insurance losses from natural disasters are expected to hit US$145bn in 2025, while other economists and scientists have also warned about potential economic losses from climate change. One study found that global economic growth could slow down by 30% if nothing is done to curb emissions.

Waning US influence

While the US’s influence in international climate fora is waning, it is still trying to be assertive. Although the Basel Committee recently published its framework on climate-related financial disclosures, the guidelines are voluntary rather than mandatory due to US pressure.

The committee may have given in to some US pressure but there are indications that its influence “will not dominate as it once might have”, said Anne Perrault, senior finance policy counsel at Public Citizen.

Despite scientific evidence showing its impact, climate change and especially climate-related financial risk have become a partisan issue in the US, said Graham Steele, former assistant secretary at the US Department of the Treasury.

The Fed sees itself as bipartisan and so tries not to be seen as too controversial or polarising.

“It has only gotten exacerbated in the second Trump administration, but some of this stuff started during the first Trump administration as a backlash to the broader ESG movement and even continued during the Biden administration itself,” said Steele.

The fact that the Fed joined the NGFS right before former US president Joe Biden took office then left soon after Donald Trump was elected shows that “they are very clearly reading the political winds and adjusting themselves accordingly”.

But if the Fed really wanted to be independent, it should be responding to climate science instead of changes in political direction, said Steele.

While the Trump administration and other Republican state politicians have been extremely vocal in opposing green policies, there are many states pushing ahead on climate disclosures.

California’s climate disclosure rule could impact many large US companies, while other states are also considering passing similar legislation.

Even some large US banks have been quietly preparing for climate change, said Perrault.

“Larger banks are not fully buying what the Trump administration and regulators in the Trump administration are selling in terms of climate [not being a] financial risk”.

But that will not be enough to fill the gap left by federal regulators nor is it ideal, said Steele. Nationwide information is needed to see trends and while some data will be available at state level, there will be gaps, he said.

The federal government has also sued some states for their climate rules which could create further complications.

Increased climate change risk

Even if other actors forge ahead, pulling the US out of the Paris Agreement and other climate groups will increase the associated risks.

One area in which this may happen is reduced regulatory oversight which signals to banks that climate risk doesn’t matter, said Perrault. It also means less funding, less data and reduced perception of the actual risks.

“Only full international cooperation on climate action might slow down, stop and ultimately reverse the build-up of physical climate risks,” said Jérôme Crugnola-Humbert, a sustainable finance expert and independent consultant. “Anything short of that, including the ‘fragmented world’ we are now in, will lead to further climate change and physical risks globally, including in Europe.”

Political and regulatory uncertainty in the US could also increase transition risks, he said. This leaves other players like the EU in a tough spot, creating short-term constraints that prevent them from achieving their own climate goals.

Pressure to be more competitive with the US is one reason for the EU’s proposed omnibus regulation, which would curb the bloc’s climate reporting rules and could jeopardise its broader sustainability objectives.

“Absent global cooperation, the best course of action available to Europe may not be to align with the least ambitious policies, but more coalition-building with the likes of Canada, China, Japan, India or Brazil,” said Crugnola-Humbert.

Ultimately, it is the US that could end up hurting the most from pulling away from transitioning to a net-zero economy.

“The US is ceding its opportunity here to be a leader on renewables. That’s the future for making money. And China knows this, and it’s doing it,” said Perrault.

This could also create further risks for the US financial system and create a feedback loop or a “climate-related doom loop”, said Steele.

Banks backing out of net-zero commitments will create more physical risks, which will lead to more climate change, creating even more climate-related financial risk. “So we’re going to get more emissions because US banks are going to keep financing them, and then we’re going to have even more damage that is done to communities, to the mortgage markets and so on,” Steel said.

Update, 26 June 2025: this article was amended to correct a quote from Jérôme Crugnola-Humbert.

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