Sarasin & Partners welcomes the Basel Committee on Banking Supervision’s focus on strengthening banks’ disclosure requirements for climate-related financial risks.
If we are to evaluate risks to the financial sector properly, investors need reliable, prudent and consistent disclosures that show how banks could be affected by climate-related risks.
Promoting climate-resilient banks is a key part of Sarasin’s stewardship work. Specifically, we are seeking to ensure banks’ strategies and financing activities are supportive of the goals of the Paris Agreement to cap global warming at 1.5°C above pre-industrial times.
We view this as important to supporting long-term economic growth, and thus important for our clients’ future returns.
In its most recent consultation, the Basel Committee on Banking Supervision (BCBS) invited submissions regarding the potential to extend the Pillar 3 disclosure framework to include climate-related financial risks.
Our contribution
Sarasin & Partners’ contribution to the consultation can be found here. It includes the following key points:
- Climate risks are unique in the scope of their impacts, uncertainty and irreversibility. We therefore urge a precautionary approach and early action to limit damaging outcomes.
- The soundness of the banking system depends on recognising and managing system-wide interactions. This requires a long-term mindset and capital requirements that reward effective climate risk management.
- Pillar 3 disclosures will be most effective if they build on prudent financial statements that include foreseeable losses and liabilities due to physical or transition impacts of climate change.
- Prudential climate stress testing results should be disclosed and should cover banking and trading books. Without disclosure, investors cannot fulfil their role in holding banks to account for capital management.
- We suggest a net zero underpin for executives’ performance-related pay similar to the capital adequacy underpin introduced following the 2007-8 financial crisis.
Transparent and sustainable banking
Our submission to the BCBS builds on our long-running efforts to promote more transparent and sustainable banking.
In 2019, we became co-chair for the Institutional Investor Group on Climate Change’s (IIGCC’s) Net Zero Banking initiative. Following consultation with global investors and banks, IIGCC published a Net Zero Banking Standard in 2023 to provide a clear set of investor expectations for how banks can ensure their activities are credibly aligned with the Paris Agreement goals.
In January this year, Sarasin coordinated a collective investor letter to the Bank of England’s Prudential Regulation Authority to seek its support in promoting improved climate risk disclosures at banks to enable investors to fulfil their role under Pillar 3 of the Basel Framework.
Important information
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