Citing inconsistencies with the Basel Committee on Banking Supervision’s regulatory capital framework and its recent guidance on climate risk disclosures, the American Bankers Association yesterday urged the committee to work with banks to develop alternate disclosures.
The committee last year published a consultative document about climate-related financial risks, part of the broader “Pillar 3” of the Basel capital framework, which seeks to promote market discipline through regulatory disclosure requirements. Proposed disclosures include measurements and forecasts detailed by specific industry of Scope 3 financed emissions in bank lending portfolios and “facilitated emissions” within investment banking operations. Additional disclosures related to credit loss allowances by industry and by geographic regions “subject to climate change physical risk” were also proposed.
In a letter, ABA noted that financed emission levels and other proposed metrics are irrelevant to credit risk, thus putting into question the usefulness of such information for the capital framework’s capital adequacy purposes. Further, the association cited the complications of associating physical risk with bank-specific credit risk, a point previously made by the committee in climate risk guidance issued in 2021. Given the confusion such disclosures will bring, “this is not the objective of Pillar 3 disclosure,” ABA said.
