- This framework allows national regulators to decide if banks in their jurisdictions must report climate-related financial risks.
- Banks are encouraged to assess both physical risks , like extreme weather events, and transition risks.
As climate change tightens its grip on the global economy, one of the world’s top banking regulators has taken a step back from enforcing climate transparency. The Basel Committee on Banking Supervision has released a long-awaited framework for climate risk disclosures—but stopped short of making it compulsory.
The framework, unveiled on Friday, according to Reuters, gives national regulators the freedom to decide whether or not to require banks under their jurisdiction to report on how climate-related risks might impact their financial stability.
The decision follows intense debate and marks a significant shift from earlier drafts that leaned toward stricter global enforcement.
The framework encourages banks to evaluate both “physical risks” such as wildfires, floods, or extreme heat, and “transition risks,” like policy changes affecting high-emission sectors. Banks are also asked to assess how these risks might affect profitability and capital adequacy over time.
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Flexibility Over Uniformity
However, the final version omits one of the more contentious elements from its earlier proposal: mandatory reporting of so-called “facilitated emissions,” or emissions tied to a bank’s capital markets and trading activities.
The decision underscores a growing rift between regulators on different sides of the Atlantic. European authorities, led by the European Central Bank, have pushed aggressively to integrate climate risk into financial supervision.
In contrast, U.S. regulators have taken a sharp turn away from climate-focused financial policy since the return of Donald Trump to the presidency.
In January, the Federal Reserve reportedly withdrew from the Network of Central Banks and Supervisors for Greening the Financial System, a global body coordinating green finance efforts. At the same time, several major U.S. banks quietly dropped their climate targets, citing legal uncertainty and shifting political priorities.
While the Basel Committee has backed away from mandatory measures for now,the decision remains open. The committee said it would continue to monitor other international reporting frameworks and may revise its guidelines as disclosure practices evolve.
