Agencies Issue Principles for Climate-Related Financial Risk Management for Large Financial Institutions

Federal bank regulatory agencies today jointly finalized principles that provide a high–level framework for the safe and sound management of exposures to climate–related financial risks for large financial institutions.

The principles are consistent with the risk management framework described in the agencies’ existing rules and guidance. The principles are intended for the largest financial institutions, those with $100 billion or more in total assets, and address physical and transition risks associated with climate change.

The principles are intended to support efforts by the largest financial institutions to focus on key aspects of climate–related financial risk management. General climate–related financial risk management principles are provided with respect to a financial institution’s governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Additionally, the principles describe how climate–related financial risks can be addressed in the management of traditional risk areas, including credit, market, liquidity, operational, and legal risks.

The final principles neither prohibit nor discourage large financial institutions from providing banking services to customers of any specific class or type, as permitted by law or regulation. The decision regarding whether to make a loan or to open, close, or maintain an account rests with the financial institution, so long as the financial institution complies with applicable laws and regulations.

These final principles are substantively similar to the agencies’ draft principles, with clarifications based on commenter feedback.