Risk Management: Principles for Climate-Related Financial Risk Management for Large Financial Institutions

Summary

The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Federal Reserve Board), and the Federal Deposit Insurance Corporation (collectively, the agencies) today announced principles for climate-related financial risk management for large financial institutions (principles), which are designed to support the identification and management of climate-related financial risks by financial institutions with more than $100 billion in total consolidated assets.¹

Highlights

The principles are intended to

• support large financial institutions’ efforts to focus on key aspects of climate-related financial risk management.
• provide a high-level framework for climate-related financial risk management consistent with the agencies’ existing rules and guidance.

Background

Weaknesses in how financial institutions identify, measure, monitor, and control the potential physical and transition risks associated with a changing climate could adversely affect financial institutions’ safety and soundness. Financial institutions are likely to be affected by both the physical risks and transition risks associated with climate change (referred to in the principles as 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 institutions or sectors arising from the shifts in policy, consumer and business sentiment, or technologies associated with changes that would be part of a transition to a lower carbon economy. While many financial institutions already consider these risks, the principles support large financial institutions’ efforts to focus on key aspects of climate-related financial risk management, allowing these institutions’ boards of directors and management to identify risks and develop and implement appropriate strategies to mitigate those risks. These principles are intended for the largest financial institutions, those with over $100 billion in total consolidated assets.

Further Information

Please contact Tamara Culler, Director for Governance and Operational Risk Policy, Bank Supervision Policy, at (202) 649-6550; Russell D’Costa, Program Analyst, Office of Climate Risk, at (202) 649-8283; or Alison MacDonald, Senior Counsel, Chief Counsel’s Office, at (202) 649-5490; or send an email to climate@occ.treas.gov.

Grovetta N. Gardineer
Senior Deputy Comptroller for Bank Supervision Policy

Related Link

• “Principles for Climate-Related Financial Risk Management for Large Financial Institutions” (PDF)
• Summary of Final Principles for Climate-Related Financial Risk Management for Large Financial Institutions (PDF)