Global Bank Regulators Prioritize Climate Risks Amid U.S. Divergence

On May 12, 2025, the Basel Committee on Banking Supervision (BCBS) convened to address escalating concerns surrounding climate-related financial risks. The committee committed to intensifying efforts to comprehend the financial implications of extreme weather events on the banking system. A significant outcome of this meeting was the plan to release a voluntary disclosure framework for climate-related financial risks, intended to guide national regulators. While the BCBS's standards are influential globally, they lack direct enforcement power.

Established in 1974 under the Bank for International Settlements, the BCBS serves as the primary global standard setter for the prudential regulation of banks. Its mandate is to strengthen the regulation, supervision, and practices of banks worldwide to enhance financial stability. The committee's decisions, while not legally binding, are highly influential and often adopted by national regulators.

During the May 12 meeting, the BCBS emphasized the need to understand the financial implications of extreme weather events on the banking system. The committee announced plans to release a voluntary disclosure framework for climate-related financial risks, aiming to guide national regulators in integrating these considerations into their supervisory practices. This initiative aligns with European and British regulatory strategies that have already embedded climate considerations into banking supervision.

In contrast to the BCBS's proactive stance, the United States has recently retreated from several climate-focused initiatives:

• Federal Reserve's Withdrawal from NGFS: In January 2025, the Federal Reserve announced its withdrawal from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), citing that the group's expanding scope now exceeds its statutory mandate.

• Treasury Department's Rejection of Joint Climate Principles: The U.S. Treasury Department has rejected joint climate principles for major banks, reflecting a broader trend of regulatory divergence from international climate initiatives.

• Major U.S. Banks Exiting Climate Alliances: Major U.S. financial institutions, including Bank of America and Citigroup, have withdrawn from the Net-Zero Banking Alliance, a UN-backed climate initiative aimed at reducing global warming by limiting financing to industries contributing to greenhouse gas emissions.

The divergence between international and U.S. regulatory approaches to climate-related financial risks has several societal implications:

• Global Financial Stability: Inconsistent regulatory frameworks may lead to fragmented approaches to managing climate risks, potentially undermining global financial stability.

• Market Confidence: The lack of a unified stance on climate risk management could erode investor confidence, particularly in markets where climate considerations are increasingly prioritized.

• Environmental Impact: Reduced participation in climate initiatives by major economies like the U.S. may hinder global efforts to mitigate climate change, affecting communities worldwide.

The BCBS's focus on climate-related financial risks is a relatively recent development. In June 2022, the committee issued principles for the effective management and supervision of climate-related financial risks, marking a significant step in integrating climate considerations into banking supervision. The current initiative builds upon these principles, reflecting an evolving understanding of the systemic risks posed by climate change.

The Basel Committee's recent commitment to addressing climate-related financial risks underscores the growing recognition of climate change as a systemic threat to financial stability. However, the U.S. regulatory retreat from climate initiatives highlights a significant divergence in approaches, raising questions about the future of international cooperation in managing climate-related financial risks.