Open letter
In its response to the BCBSBasel Committee on Banking Supervision consultation on the disclosure of climate-related financial risks, Finance Watch reiterates that, if an efficient global disclosure framework is of great importance, it isn’t, in itself, sufficient. Addressing the climate-related financial stability challenge requires consistent prudential measures throughout all pillars of the prudential framework.
Finance Watch welcomes the BCBS work towards comparable and consistent climate-related disclosures that would provide a common baseline for internationally active banks. Data availability is an indispensable foundation for the management of risks and prudential supervision. The establishment of a global disclosure framework is of great importance to improve the availability and quality of risk data, yet, in itself not sufficient to ensure the risks are actually addressed. Therefore, Finance Watch encourages the BCBS to advance its work on the holistic review of the Basel framework, importantly capital requirements, as part of its mandate to strengthen the regulation and supervision worldwide.
In its response, Finance Watch strongly supported the disclosure of banks’ transition plans asking for further transparency on the underlying scenarios and banks’ risk mitigating actions such as engagement with the clients and contractual arrangements (covenants) to facilitate transition of the clients’ business models.
Finance Watch emphasised the need for additional transparency and consistent definitions of the key disclosed elements such as climate risk metrics and underlying methodologies. Importantly, forward-looking information (beyond Scope 3 emissions only) should be provided as an indispensable element for the assessment of climate-related risks.
Furthermore, Finance Watch joined a group of experts, practitioners and global stakeholders in signing a letter recommending that the Basel Committee enshrine the principle of “full transparency” into the disclosure principles, i.e. applying the look-through principle then disclosing Scope 3 financed emissions to make sure the true emissions of the underlying activities are always captured.
Given the delays in the release of the Committee’s gap analyses of the Basel Framework compared to the original timeline per the FSB Roadmap, we would welcome more transparency on the process, including engagement with various stakeholders.
