Basel Committee consults on a disclosure framework for climate-related financial risk

The BCBS issued a consultative document on developing a Pillar 3 disclosure framework for climate-related financial risks. This effort is part of the Committee’s comprehensive strategy to manage climate-related financial risks facing the global banking system
The BCBS, a key player in the global financial regulatory landscape, continues to address climate-related financial risks through a three-pillar approach, focusing on regulation, supervision, and disclosure. Back in 2021, the Committee published two analytical reports on climate-related risk drivers and their transmission channels, as well as measurement methodologies. These reports concluded that climate risk drivers can be captured in traditional financial risk categories. Building on this foundation, the Committee is exploring the extent to which climate-related financial risks can be addressed within the existing Basel Framework, identifying potential gaps and considering potential measures to address them.
In June 2022, the Committee published the Principles for the effective management and supervision of climate-related financial risks, aimed at improving banks‘ risk management practices and supervisory practices related to climate-related financial risks. In December 2022, the Committee issued Frequently asked questions on climate-related financial risks to clarify how these risks may be captured in existing Pillar 1 standards.
Indeed, disclosure of climate-related financial risks is a critical component of a sound banking system, as it reduces information asymmetry and promotes comparability of banks‘ risk profiles within and across jurisdictions. As part of its work, the Committee is analyzing how a Pillar 3 disclosure framework for climate-related financial risks would strengthen regulation, supervision, and practices of banks worldwide, with the goal of enhancing financial stability. The Committee is also considering the potential design of such a framework.
The Committee recognizes that the accuracy, consistency, and quality of climate-related data are still evolving but aims to incorporate a reasonable level of flexibility into a future framework. This flexibility will be based on feedback through the consultation process, with the Committee considering which elements would be mandatory and which subject to national discretion.
This consultation paper summarizes the Committee’s work to assess the prudential rationale for potential disclosure requirements. For each area under consideration, the Committee has included draft disclosure tables and templates for illustrative purposes and to solicit stakeholder feedback on the meaningfulness and comparability of potential future disclosures.
The responses to this consultation paper will inform the Committee’s development of a Pillar 3 disclosure framework for climate-related financial risks. In parallel, the Committee will continue to coordinate with other international bodies and jurisdictional authorities that are developing their approaches to disclosure requirements for climate-related financial risks to ensure interoperability of future frameworks.
The Committee invites submissions on the proposals, which should be submitted by 29 February 2024 using THIS link. All comments will be published on the Bank for International Settlements website unless a respondent specifically requests confidential treatment.