Dive Brief:
- The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency announced Thursday they will no longer provide climate-related financial risk guidance to large banks and lenders.
- The decision to rescind the Principles for Climate-Related Financial Risk Management for Large Financial Institutions comes after the OCC withdrew its participation from the framework in March. The guidance aimed to help banks managing over $100 billion in total assets identify and manage monetary risks related to climate change.
- In a joint statement, the regulators said they do not believe the framework is necessary and expressed concerns that “such principles could distract from the management of other potential risks identified and addressed by financial institutions’ existing risk management processes and the agencies’ other risk management rules and guidance.”
Dive Insight:
The Fed, FDIC and OCC said their existing standards require supervised financial institutions to have an effective risk management process in place that is on par with the “size, complexity, and risk of their activities.” These standards, according to the agencies, already establish the expectation for banks to “consider and appropriately address all material risks in their operating environment … including emerging risks.”
The principles are no longer available on the websites of all three agencies as of Oct. 16.
The agencies established the principles in October 2023, under the Biden administration. At the time, the agencies said they aimed to provide banks with a “high-level framework for climate-related financial risk management consistent with the agencies’ existing rules and guidance.”
The decision to rescind the framework comes a few months after the banking regulators departed the Network of Central Banks and Supervisors for Greening the Financial System. The OCC left the global coalition that aims to mobilize green finance and develop recommendations for climate-risk management in the financial sector in February, following in the footsteps of the Federal Reserve, FDIC and the Treasury Department, who exited NGFS in January, around the time of President Donald Trump’s inauguration.
Several climate and sustainability advocates have criticized the federal agencies’ decision to abandon the principles.
In an emailed statement sent to ESG Dive on Friday, Sarah Bloom Raskin — former deputy secretary of the Treasury, former Federal Reserve governor and current senior fellow at the Roosevelt Institute — said the agencies’ backtracking “threatens the soundness of the country’s banks and [their] financial stability.”
“Pretending that climate change does not pose widespread financial consequences will not make their effects disappear. This decision leaves homeowners, businesses, and communities vulnerable as extreme weather events increase,” she added.
Sierra Club Sustainable Finance Campaign Adviser Jessye Waxman echoed the sentiment, noting in a Friday statement that “climate change poses a destabilizing, systemic threat to the financial system.”
“The science hasn’t changed, the risks have only worsened, and the best practices for banks are clearer than ever,” Waxman added. “The only relevant change is the administration in power, which shows that this reversal is a purely political move.”
Since returning to the White House in January, Trump has led a federal reversal on U.S. climate policy, including a second exit from the Paris Agreement, withdrawals from other international climate obligations and broad federal funding pauses for climate programs. Additionally, agencies such as the Securities and Exchange Commission and the Department of Labor have been taking steps to distance themselves from rules promulgated under the prior administration, particularly those on environmental, social and governance issues.
