The Federal Reserve Board (FRB), with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, has released the final Principles for Climate-Related Financial Risk Management for Large Financial Institutions. Applicable to U.S. banking organizations with over $100 billion in total consolidated assets, the Climate Principles aim to support existing risk management standards. The framework covers governance, policies, strategic planning, risk management, data, and scenario analysis. Despite targeting larger institutions, the Agencies acknowledge that climate-related financial risks affect banks of all sizes, and prompt smaller entities to assess their programs against these principles.

The Climate Principles emphasize the evolving nature of climate-related risks, mirroring international standards like the Taskforce for Climate-related Financial Disclosure and the Basel Committee’s principles. The release assures that covered financial institutions retain autonomy in serving diverse customer classes, with the FRB distancing itself from being a ‘climate policymaker.’ The Agencies stress incorporating climate-related risks into risk management policies, encouraging ongoing monitoring and adaptation to changing methodologies and regulatory landscapes. The conclusion of the Federal Reserve’s climate scenario analysis exercise is anticipated to provide further guidance on climate-risk management. Overall, the Climate Principles underscore the growing importance of addressing climate-related financial risks across the banking sector, aligning with global initiatives and emphasizing the need for ongoing awareness and adaptation.

How will these principles affect your organization? Are you prepared to address the financial risks associated with climate change policy?

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