The Fed Blocks Stricter Global ESG Rules for Banks

The US Federal Reserve has blocked an attempt led by the European Central Bank (ECB) to make climate risks a pillar of global rules for banks and require them to report their strategies on meeting climate commitments, sources with knowledge of the matter have told Bloomberg.

Some members of the Basel Committee on Banking Supervision (BCBS), which includes central banks and bank supervisors from around the world, have been pushing for making climate risks and ESG commitments the center of new rules for banks everywhere in the world.

Members of the Fed, however, have expressed in closed-door meetings concerns about such rules because they believe the committee might be overreaching with this particular supervision, according to some of Bloomberg’s sources. The Fed officials also feel they have a narrow mandate in this area to regulate climate risk disclosures from the Wall Street banks, the sources added.

Although the Basel Committee cannot enforce its banking system standards on jurisdictions, it could set a global baseline, from which the single countries develop their own rules and procedures. 

The Fed’s resistance to the Europe-led climate risk disclosures highlights the rift between the two sides of the Atlantic in the ESG push, with Europe committed to implementing tougher rules.

European banks should integrate environmental, social, and governance risks in their regular risk management framework, the European Banking Authority (EBA) said in January in draft guidelines on the management of ESG risks.

The European authority published a consultation paper on its draft proposals for banks as it launched a public consultation that will run until April 18, 2024.   

According to the EBA, climate change, environmental degradation, social issues, and other ESG factors pose “considerable challenges for the economy that impact the financial sector.”

“The risk profile and business model of institutions may be affected by ESG risks, in particular, environmental risks through transition and physical risk drivers,” the authority noted early this year.

By Tsvetana Paraskova for Oilprice.com

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