Dec 8 -- The Board is requesting comment on draft principles that would provide a high-level framework for the safe and sound management of exposures to climate-related financial risks for Board-supervised financial institutions with over $100 billion in assets. Although all financial institutions, regardless of size, may have material exposures to climate-related financial risks, these principles are intended for the largest financial institutions, i.e., those with over $100 billion in total consolidated assets. The draft principles are intended to support efforts by large financial institutions to focus on key aspects of climate-related financial risk management. Comments on the draft principles must be received on or before February 6, 2023.
The Board is requesting comment on draft principles that would provide a high-level framework for the safe and sound management of exposures to climate-related financial risks for financial institutions with over $100 billion in assets. The financial impacts that result from the economic effects of climate change and the transition to a lower carbon economy pose an emerging risk to the safety and soundness of financial institutions and the financial stability of the United States. Financial institutions are likely to be affected by both the physical risks and transition risks associated with climate change (collectively, “climate-related financial risks”). Physical risks refer to the harm to people and property arising from acute, climate-related events, such as hurricanes, wildfires, floods, and heatwaves, and chronic shifts in climate, including higher average temperatures, changes in precipitation patterns, sea level rise, and ocean acidification. Transition risks refer to stresses to certain institutions or sectors arising from the shifts in policy, consumer and business sentiment, or technologies associated with the changes that would be part of a transition to a lower carbon economy.
Weaknesses in how financial institutions identify, measure, monitor, and control potential climate-related financial risks could adversely affect financial institutions' safety and soundness, as well as the stability of the overall financial system. The Board is therefore seeking comment on draft principles that would promote a consistent understanding of how climate-related financial risks can be effectively identified, measured, monitored, and controlled among the largest institutions, those with over $100 billion in total consolidated assets. Many financial institutions are considering these risks and would benefit from guidance as they develop strategies, deploy resources, and make necessary investments to manage climate-related financial risks.
The draft principles would provide a high-level framework for the safe and sound management of exposures to climate-related financial risks, consistent with the risk management frameworks described in the Board's existing rules and guidance. The draft principles are intended to support financial institutions' efforts to incorporate climate-related financial risks into financial institutions' risk management frameworks in a manner consistent with safe and sound practices.
The Board developed the proposed guidance in consultation with the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC). The OCC and FDIC requested comment on similar draft principles in December 2021 and March 2022, respectively. The agencies seek to promote consistency in their climate risk management guidance and to clearly articulate risk-based principles on climate-related financial risks for large financial institutions. Accordingly, after reviewing comments received on the proposed guidance, the Board intends to coordinate with the OCC and FDIC in issuing any final guidance.
The Board welcomes comments on all aspects of the draft principles, including on the following questions.
Question 1: In what ways, if any, could the draft principles be revised to better address challenges a financial institution may face in managing climate-related financial risks?
Question 2: Are there areas where the draft principles should be more or less specific given the current data availability and understanding of climate-related financial risks? What other aspects of climate-related financial risk management, if any, should the Board consider?
Question 3: What challenges, if any, could financial institutions face in incorporating these draft principles into their risk management frameworks?
FRN:
https://www.federalregister.gov/d/2022-26648
Press release (Dec 2)
https://www.federalreserve.gov/newsevents/pressreleases/other20221202b.htm