Fed publishes draft climate principles for banks

December 6, 2022|Written by Graham Caswell|Federal Reserve

The Federal Reserve board of governors has published draft principles for managing climate-related financial risks among US banks with over $100bn of assets. Similar to earlier drafts from the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), the proposed guidelines cover governance, strategy, risk management and metrics.

The draft principles were approved six to one by members of the Fed’s governing board, with only governor Christopher Waller dissenting. “I disagree with the premise that [climate change] poses a serious risk to the safety and soundness of large banks and the financial stability of the United States,” Waller said in his statement on the vote.

The guidelines incorporate the main elements of the recommendations of the Taskforce on Climate-related Financial Disclosures, but are divided into six areas instead of four. They cover: governance; policies, procedures and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. The Fed is currently seeking public comments on the draft document and the consultation process closes in two months.

The publication of the draft principles follows calls from civil society for the move. A letter from a group including Americans for Financial Reform, the Center for American Progress, Sierra Club, Public Citizen asked banks to adopt a “whole-of-business” approach to mitigating climate risk, and to align their internal climate strategies with their public commitments as well as with science-based metrics and targets. Supported by a petition from 60,000 people, the letter also called on banks to “conduct robust climate scenario analysis modelling and review results with bank supervisors”.

Public Citizen’s climate programme director David Arkush was more frustrated with the Fed’s progress than with the contents of its proposal. “This is now the third round of comment on substantially similar, uncontroversial principles,” he said in response to the latest draft guidelines.

“The climate-related risks large banks face have only grown more severe since the OCC issued its draft principles almost a year ago. This process has taken too long, and we are disappointed that the agency is delaying implementation of these principles to seek another round of comment.”

Arkush also said the OCC, FDIC and Fed should finalise their principles as quickly as possible.

This page was last updated December 6, 2022

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