Stark Differences Exist Between EU and U.S. Approaches to Climate-related Financial Risks

July 2, 2024

Stark Differences Exist Between EU and U.S. Approaches to Climate-related Financial Risks

In a letter to U.S. regulatory leaders, groups call for concrete steps and adoption of Basel Committee on Banking Supervision's climate standards

WASHINGTON, D.C. - A coalition of over 30 leading consumer advocacy and environmental organizationstoday called uponthe Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation to address the growing threats posed by climate change to banks and the broader financial system.

In a letteraddressed to Chair Jerome Powell, Acting Comptroller Michael Hsu, and Chair Martin Gruenberg, the coalition-which includes Public Citizen, Americans for Financial Reform Education Fund, Sierra Club, and The Sunrise Project-emphasizes the urgent need for decisive regulatory action to mitigate fast-growing threats posed by climate change to consumers, the economy and the financial system.

"Climate change is already contributing to a growing insurance protection gap, threatening lenders, municipalities, and interconnected financial actors," the groupswrite in the letter."It is reducing the availability of essential resources like food and water, increasing health costs, and exacerbating inflation. Marginalized communities, particularly communities of color, are being hit hardest while lacking the capacity to respond."

The letter criticizes U.S. bank regulators for lagging behind their European counterparts in addressing climate-related financial risks. It cites reporting by Bloomberg describing that the Federal Reserve is blocking action by the Basel Committee on Banking Supervision to make climate risk an important part of financial rules.

While the European Central Bank is recognizing the gravity of financial risks posed by climate change and taking proactive measures in response-including imposing fines on non-compliant banks and developing strategies to address macroprudential risks-U.S. regulators are mostly continuing to study the issue.

"The differences in U.S. and EU approaches to climate-related financial risks are stark," said Anne Perrault, senior finance policy counsel with Public Citizen's Climate Program. "While the U.S. has adopted limited supervisory guidance to help prevent climate-related failures of its largest banks, it has done little else to address the root causes of these threats. In contrast, the European Union is taking comprehensive and proactive measures to tackle this profound reality, setting a critical example that the U.S. must follow to protect its financial system from escalating climate risks."

The coalition urges U.S. regulators to take concrete steps, including via the Basel Committee on Banking Supervision, to address climate-related financial risks. The letter details a comparison between US and EU approaches, highlighting the stark differences and calling for immediate intervention.

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