An overhaul of bank capital rules would be the most effective step regulators could take to support climate action, a group of 50 sustainable finance experts said on Tuesday.

A general view of Greenland Photo: VCG

In a survey carried out by the nonprofit Climate Safe Lending Network, academics, commercial banks, investors, nongovernmental organizations and central banks were asked to rank 10 proposals for how financial regulation could be changed to boost climate efforts. 

Respondents included the Bank of England, the European Central Bank and Spain's BBVA, as well as Boston Common Asset Management and Amalgamated Bank in the US, and the UK's Big Society Capital.

The proposal drawing the most support was for regulators to impose tougher rules around the amount of capital banks need to keep as a buffer if they want to lend to companies responsible for emitting high levels of greenhouse gases.

At the moment, banks can lend to fossil fuel companies relatively cheaply because the risk-weights applied to the lending do not take into account the systemic risks of doing so, the report said. By making it more expensive to lend to these companies, banks would lower their exposure to the risk, build up capital buffers to absorb potential losses from any loan defaults and focus investment on other parts of the economy.

On a scale of one to five assessing the potential impact of the policy proposal, with five the highest, the survey respondents rated it 4.13.