What is this about?
In 2021, Finance Watch – with an incredible network of allies – began to shift the dial on climate-related financial risks facing banks and insurers – by launching the One-For-One open letter.
Since then, there has been heightened awareness of this urgent issue that threatens the stability of the financial system. Now, the Basel Committee on Banking Supervision (BCBS) has launched a consultation on the topic.
The BCBS is the primary global standard setter for banks, and it is taking an important step to address climate-related financial risks in the global banking system. As it will assess and consider disclosure, supervisory and regulatory measures in a wider review, this consultation is a key opportunity to weigh in!
With it, the BCBS seeks to promote a principles-based approach to guide the way banks and supervisors approach climate-related financial risks. It aims to adapt the existing BCBS core principles for effective banking supervision (BCPs) and the supervisory review process (SRP).
As it develops these new principles, this is a chance to be heard. The consultation runs until 16 February 2022. The answers will be used to help shape international standards on climate risks, setting the tone for the system change that banks operate in.
How can you make a difference? Answer one question!
The consultative document includes 18 principles and 3 related questions. It may seem long. However, you only need to answer one question to make a difference. It is important to provide high-level feedback by commenting on Question #1 only!
By adapting the suggested response below, you will give the BCBS a reason to go beyond a gradual principles-based approach to managing climate-related financial risks. You will prompt it to take a more impactful action and review the capital rules for a major source of climate-related risk: fossil fuel financing.
I’m an individual, and I’m not an expert. Can I answer?
Yes, this is open for everybody. If you care about climate-related risks, please seize this opportunity to influence the decision-making process.
What should I answer?
Please find guidance on how to respond to Question #1 below.
Note: We encourage you to adapt your response. Please use the template answer to help you put together your own thoughts. .
Naturally, if you have time and expertise, feel free to answer the other questions. For those who work towards this, here are more in-depth key messages for support.
- Suggested Response to Question #1
It is an important step that the Basel Committee has recognised the significance of climate-related financial risks to the banking system and suggested that supervisors and banks worldwide consider these risks. However, the possible impact and timeliness of the resulting measures, which are meant to make banks resilient to climate-related risks, are questionable. Banks and supervisors do not yet have sufficiently mature methodologies and data to analyse climate-related financial risks. Expertise, risk management and supervisory capabilities will only be gradually built over time, while climate-related risks are growing with this time of inaction.
The Principles are very general and high-level. They do not offer real incentives for financial institutions to change their behaviour in response to climate-related financial risks. Guidance for the supervisors, included in the Principles, does not include evaluation of the banks´ capital levels to cover their climate-related financial risks. This means that even in the cases where supervisors will identify high climate-related risks – for example, based on climate scenario analysis – this will not result in a requirement for banks to raise capital and, by this, enhance their resilience in case of climate shocks.
Based on the above, the BCBS, in their current review of the whole Basel Framework, should prioritise the One-For-One rule (including precautionary Pillar 1 capital requirements) to address climate-related financial risks. In particular, this can be done for the risks associated with fossil fuel financing. Fossil fuel assets are particularly risky, as they will have to be abandoned to keep global warming within the limits defined in the Paris Agreement (see references below). Therefore, Pillar 1 capital requirements for fossil fuels should be increased. This will allow financial institutions to build capital buffers to cover the risks, as well as make sure these risks are treated in the same manner as other financial risks under the Basel Framework.
References: IPCC, Sixth Assessment Report; International Energy Agency (IEA), Net Zero by 2050, A Roadmap for the Global Energy Sector, Flagship Report – May 2021; World Energy Outlook 2021, October 2021
- OKAY, I’M DONE. CAN I HELP EVEN MORE?
Thank you for your contribution! Yes you can help more. Share this webpage with others who may take action.
You can also join the Regulate Climate Risk coalition, to join a group that is planning how to deliver this change at an international level. Contact Shonan Kothari
- WHY PILLAR 1 CAPITAL REQUIREMENTS FOR FOSSIL FUEL FINANCE?
The One-For-One joint letter explains – in simple terms – why we ask for this powerful, practical solution to prevent financial crises arriving on the back of the climate crisis.
Sign on to show your support!
Financial Times, 28.10.2021, Bank of England considers capital rules for banks to cover climate risks
EU Observer, 28.10.2021, New EU banking rules ignore ‘stranded assets’, critics warn
Climate Safe Lending Network, Positive Money, in partnership with EIT – Climate KIC and the UN Environment Finance Initiative, 2021, Financial Stability in a Planetary Emergency
The Hill, 28.10.2021, Unsecured fossil fuel investment risks a global financial crisis: letter
Read more about the campaign on climate risk
Check out the wider initiative of the One-for-One joint letter, which moves other important decision-makers as well.
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