You report that the US is proposing to downgrade the Basel committee’s task force on climate-related financial risks (TFCR) (“Central banks urged to downgrade climate body”, Report, May 10).
This underscores a growing geopolitical divergence in global approaches to climate-related financial regulation. Established in 2020, the TFCR plays a vital role in assessing how both physical and transition-related climate risks affect the banking system. Its work aims to integrate these risks into supervisory practices, scenario analysis and global disclosure frameworks. The task force seeks to embed these risks into the existing Basel prudential framework. The importance of the TFCR is underpinned by empirical evidence linking climate change to financial system vulnerabilities.
Climate change is a systemically significant threat that cannot be marginalised. It is increasing the frequency and severity of low-probability, high-impact events — expanding the tail risk distributions — and exacerbating compounding risks across sectors, regions and timeframes. These complex dynamics challenge the effectiveness of conventional risk-management tools.
Downgrading the TFCR risks fragmenting international regulatory coherence, weakening market confidence and signalling that climate risk is not a financial priority despite growing empirical evidence. While it is reasonable to advocate proportionality in regulation, actively undermining climate initiatives without a robust evidence base reflects a lack of international responsibility.
Rather than downplaying these challenges, the focus should be on raising awareness, strengthening capacity, improving data quality, and advancing consistent risk-assessment tools.
Only through rigorous analysis can we determine which climate risks must be accepted, mitigated or avoided. Policymakers must adopt a long-term, evidence-based perspective. Short-term political decisions made without empirical grounding jeopardise financial stability in an era of accelerating climate disruption.
Professor David T Llewellyn
Emeritus Professor of Money and Banking; Chair, Banking Stakeholder Group at European Banking Authority
Meilan Yan
Lecturer in Economics,
School of Business, Loughborough University, Leicestershire, UK
