"Stability and Sustainability in Banking Reform: Are environmental risks missing in Basel III?", Oct 2014

This report aims to trigger a deeper reflection amongst financial policy makers and regulators concerning the relevance of systemic environmental risks to banking sector stability. Recent history demonstrates linkages between risks arising both from the environment itself (e.g. extreme weather events) and from humanity’s management of environmental resources (e.g. soil quality) and banking instability. Evidence suggests this trend will become more pronounced and complex as humanity breaches more planetary boundaries...However, international banking regulation (i.e. the Basel Capital Accord or ‘Basel III’) does not address the financial stability risks associated with systemic environmental risks...The Basel Committee should...consider reforms to the Basel III Pillar 2 Supervisory Review framework and the Pillar 3 Market Discipline framework that would involve recognising systemic environmental risks as material risks that potentially threaten banking stability.