Principles for Climate-Related Financial Risk Management for Large Financial Institutions (2024)

Summary:

The Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (Board), and Office of the Comptroller of the Currency (OCC) (collectively, “agencies”) are jointly issuing principles that provide a high-level framework for the safe and sound management of exposures to climate-related financial risks (“principles”).

Climate-related financial risks, including physical and transition risks, can manifest within traditional risk areas, including credit, market, liquidity, operational, and legal risks.

In December 2021, April 2022, and December 2022, the agencies, respectively, proposed substantively similar guidance on risk management principles to support the effective management of climate-related financial risks for the financial institutions they supervise with over $100 billion in total consolidated assets.

Statement of Applicability: Other – Although all financial institutions, regardless of size, may have material exposures to climate-related financial risks, this Financial Institution Letter is intended for the largest financial institutions, those with over $100 billion in total consolidated assets

Highlights:

• These principles provide a high-level framework for the safe and sound management of exposures to climate–related financial risks, consistent with the risk management frameworks described in the agencies’ existing rules and guidance.
• The agencies are jointly issuing principles that are intended to support efforts by large financial institutions to focus on key aspects of climate–related financial risk management in a manner consistent with safe and sound practices.
• 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.
• Although all financial institutions, regardless of size, may have material exposures to climate–related financial risks, the principles are intended for the largest financial institutions, those with over $100 billion in total consolidated assets.
• The agencies encourage financial institutions to take a risk–based approach in assessing the climate–related financial risks associated with their customer relationships and to take into account the financial institution’s ability to manage the risk.
• The principles are intended to promote a consistent understanding of the effective management of climate–related financial risks. The agencies may consider providing additional resources or guidance, as appropriate, to support financial institutions in prudently managing these risks while continuing to meet the financial services needs of their communities.