In 2011, the European Union will discuss legislation to implement the revised Basel Capital Accord (Basel III): This is the so-called CRD IV (Capital Requirement Directive IV) decision-making process. Basel III intends to improve banks resilience to financial crises. This report provides constructive arguments that if the EU incorporates social and environmental criteria in the new standards, banks risk management and decision making processes, it will more effectively promote financial stability and be more capable of addressing diverse challenges banks are facing now and in the future. Moreover, such regulation would stimulate the financial sector to contribute to a more ecologically and socially sustainable, economically just and peaceful world. Sustainability criteria in capital requirements will encourage banks to better align their operations with economic, social and environmental needs. Regulators and supervisors who develop regulatory and supervisory tools should improve their understanding of sustainability risks.

This report calls upon the EU to complement its proposals for a new capital requirements legislation with provisions that ensure banks integrate sustainability criteria in their lending, financing and investment decision making processes.