Banking on the wrong risks

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Why Basel's global banking rules
must evolve for the climate era

Dear Mufhandu,

In 2008 the world discovered what happens when you underestimate risk. Years of easy credit and fragile balance sheets culminated in a financial crisis that nearly toppled the global economy.  

Never again, regulators vowed.  

Out of the wreckage came Basel III, a new global rulebook for banks that sets how much capital they must hold to cover risks.

Yet prudence in one era can become paralysis in another.

The rules designed to keep finance safe are now, inadvertently, choking off the very capital needed to confront the next crisis – climate change.

This finance gap is not just a development challenge,
it is a global one.

Without investment in clean power, resilient infrastructure and adaptation in emerging markets and developing economies, the world will miss its climate targets.

This brings about a stark paradox, one in which governments demand more private finance for climate action, but a tight rulebook makes it hard for banks to provide it. 

Three key issues stand out:

Guarantees that reduce real-world risks are too often ignored
Project finance is treated as riskier than evidence supports
Climate-ready projects fall too often in the shadow of their sovereign

COP30 in Brasil is a chance to move from pledge to practice, by setting into motion Basel III technical adjustments and clarifications that could yield an immediate boost to climate finance, while initiating a structured dialogue on broader structural reforms.

The last crisis showed the cost of underestimating risk.

The next could reveal the cost of misjudging where it truly lies.

Read the ICC policy call

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