International banking supervisors turn attention to climate risk with new taskforce

Basel Committee’s Taskforce on Climate-related Financial Risks meets for the first time under leadership of DNB’s Elderson and Fed's Stiroh

The Basel Committee on Banking Supervision, the 45-member standard-setting network for the prudential regulation of banks, is turning its focus to systemic climate risk with a new Taskforce on Climate-related Financial Risks, which met for the first time last week. 

The task force will be co-chaired by Frank Elderson, Executive Director of Supervision at Dutch central bank DNB and chair of the Network for Greening the Financial System (NGFS) and Kevin Stiroh, Executive Vice President of the Federal Reserve Bank of New York. It will produce a set of analytical reports on climate-related financial risks.

The Basel Committee has 45 members – central banks, reserve banks and other supervisors from 28 jurisdictions – and describes its mandate as “strengthening the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability”. It does not have any formal supranational authority and relies on the commitment of its membership to achieve its mandate. 

The Basel Committee, which is hosted by the Bank for International Settlements (BIS) in Switzerland, agreed to establish the climate risk task force at a meeting in October 2019, with the group starting its work late last year.

A spokesperson for the committee told RI: “Work on the risks associated with climate change is a logical fit with the mandate of the Basel Committee.” 

The papers to come out of the new task force will include a literature review, and reports on the transmission channels of climate risks to the banking system and on measurement methodologies; and the development of effective supervisory practices to mitigate climate-related financial risks.

It has also undertaken a stocktake of members' current initiatives in this area, which will be summarised and published in March.

The spokesperson said no specific deadlines had been set for the task force’s work, and that it would meet “as needed”.

The task force members are employees of the Basel Committee’s member organisations and are appointed by the member organisations. BIS declined to disclose the other individual members of the group, apart from Elderson. 

In June last year, the Basel Committee joined the NGFS as an observer, and many committee members are also members of the NGFS. After joining, it said it has “taken note of the first comprehensive report by the NGFS and discussed the implications of the report’s recommendations for the Committee’s future work”.

The report’s recommendations, issued in the spring, include integrating sustainability factors in portfolio management, building awareness and knowledge, bolstering climate disclosure and supporting the development of green definitions.

The Basel Committee spokesperson told RI that the NGFS “is a separate organisation from the Committee, with a different mandate and objectives”, but that the connections between the two organisations “would support the Committee’s intention to remain coordinated with the NGFS”.