Basel Panel Pushes Global Climate Risk Framework

Global banking regulators are stepping up efforts to evaluate and mitigate the financial risks of climate change, a sign that priorities are shifting despite increasing pushback from large economies such as the United States. On May 12, 2025, in a high-level meeting, the Group of Central Bank Governors and Heads of Supervision (GHOS), the supervisory body of the Basel Committee on Banking Supervision, reiterated their intention to implement the Basel III framework fully and uniformly while reaffirming new focus on climate-related financial risk.

The Bank for International Settlements (BIS), where the Basel Committee is based, also asserted that GHOS members universally supported the prompt and regular adoption of Basel III reforms. Nevertheless, the meeting's highlight was undeniably the rising menace of climate change to the financial sector. Under its strategic agenda, the Basel Committee will shortly issue a voluntary Pillar 3 disclosure framework particularly for climate-related financial risks. While not binding, the framework has the potential to act as a global point of reference for national financial regulators, and in turn influence how banks report and deal with their exposure to environmental risks.

One of the primary areas of focus for regulators is the increasing severity and frequency of extreme weather events, which are already exerting deep effects on economic systems globally. The GHOS has assigned the Basel Committee to make the examination of the financial impacts of such disasters a priority, reflecting a wider shift in regulatory attention away from traditional banking risks towards the complex and dynamic nature of climate risk.

This step marks the increasing divide between global regulators on climate-linked financial regulation. Regulators from Europe and the UK have led the charge of incorporating climate issues into financial oversight. Regulators such as the European Central Bank have positioned management of climate risks as a prime supervisory aim. Conversely, the US has been withdrawing from joint international actions on climate finance.

During the administration of former President Donald Trump, U.S. regulatory bodies stepped back from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and moved away from shared climate risk frameworks. Although the Federal Reserve under Chair Jerome Powell has performed limited climate risk assessments, Powell has consistently stressed that the Fed has a limited statutory mandate and cannot exceed its authority by directly participating in environmental policymaking. This conservative approach is in direct contrast with Europe's more activist regulatory stance.

As America further retreats, experts assume the Basel Committee's shifting climate agenda is more and more on the same page as European objectives. Such harmonization has the potential to indirectly apply pressure to national regulators, even in nations politically less inclined to put environmental risk first. By establishing a voluntary yet internationally accepted standard, the Basel Committee's new climate disclosure framework has the potential to serve as a de facto benchmark—shaping markets toward increased transparency and resilience under climate change.

Though its enforcement power is limited, the Basel Committee's influence over worldwide banking norms is considerable. By endorsing climate-related disclosure frameworks, the Basel Committee is viewed as taking a crucial move towards making climate risk assessment mainstream across the financial industry. Experts consider that this may propel reluctant jurisdictions, such as the U.S., into better transparency, particularly as global investors and stakeholders require more transparent, comparable climate risk data.

Along with the climate agenda, the GHOS also looked back at the resilience of the Basel framework generally in the light of recent banking crises, notably the liquidity and interest rate pressures seen in the 2023 crisis. This two-pronged approach—on conventional systemic risk and the new threats posed by climate change—is indicative of an overall approach to protecting the global financial system.

Finally, despite lingering political differences—most prominently between the transatlantic financial giants—the Basel Committee's work reflects a broadening regulatory consensus that climate risks are no longer on the periphery. They are at the core of the health and stability of the financial system. Without U.S. leadership, the Committee's initiative to create a global standard for climate risk disclosure could bring much-needed consistency to the way financial institutions evaluate and report their exposure to environmental risks.

As the climate crisis deepens, so does the demand for strong and standardized frameworks to assess its financial cost. The Basel Committee's future framework might not be binding, but its impact could be revolutionary, defining the next generation of global financial regulation in a warming world.