Ceres issued more than a dozen recommendations for actions federal financial regulatory agencies should take to address the financial risk that climate change places on our nation’s banking system.
"2022 has the potential to be a year for historic action by U.S. financial regulators. Last October, we welcomed the report from the Financial Stability Oversight Council, where these regulators called climate change an emerging risk for the first time,” said Steven M. Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. “These recommendations build on that momentum by identifying practical and familiar steps that these agencies can take within their existing authorities to make good on their commitments to take action on climate financial risk."
Ceres submitted its recommendations to the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the U.S. Treasury Department. These recommendations follow on the heels of the OCC's release in December of draft climate principles for banks, which highlights the exposure banks in the United States have from climate change.
Ceres specific recommendations for the federal agencies include the following:
To the Federal Reserve:
Issue supervision and regulation letters on climate risk to regulated banks and bank holding companies to acknowledge that climate poses risks to the financial system and provide guidance to financial institutions on identifying and monitoring that risk.
Conduct a horizontal review of the largest bank holding companies to gain an understanding of how they are identifying and managing climate risk.
Conduct further research on climate risks and impacts that the economies of the different federal reserve districts face.
Issue a request for information (RFI) to stakeholders for available data to inform the Federal Reserve on climate-related risks to the financial system, especially in low- and moderate-income communities.
Issue an RFI from stakeholders for input into scenario analysis tools used by financial institutions to measure climate risks.
To the FDIC:
Include climate as a risk that may affect banks or the Deposit Insurance Fund in its next Risk Review.
Issue guidance to regulated banks on climate risk.
Include climate risk as a supervisory priority in its 2022 goals and priorities.
Identify tools for financial institutions to measure climate risk.
Issue an RFI to stakeholders for information on climate risk.
Join the Network of Central Banks and Supervisors for Greening the Financial System.
To the OCC:
Issue an exam manual for banks and bank examiners dedicated to climate risks.
Continue to use the Semiannual Risk Perspective and Bank Supervision Operating Plan to highlight the seriousness of climate risk to financial institutions.
Take a comprehensive approach to climate-related risk and issue binding safety and soundness guidelines.
Conduct a horizontal review of a targeted group of banks that have significant exposure to climate risk.
Treasury and Interagency recommendations:
Conduct a policy “sprint” or time-bound initiative to develop creative solutions to climate risks facing financial institutions and identify any regulatory gaps.
Establish a climate working group within the Federal Financial Institutions Examination Council (FFIEC) that would enhance regulatory efforts and communications among member organizations.
Issue guidance through the FFIEC.
Collect information on financial institutions’ climate-related financial risks consistent with the Financial Stability Oversight Council’s recommendations.
Amend the Uniform Bank Performance Report to include standardized measurements of climate risk.
Develop a climate risk assessment tool to help financial institutions--particularly small community institutions--identify their climate risks and preparedness.
About Ceres
Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. The Ceres Accelerator for Sustainable Capital Markets is a center within Ceres that aims to transform the practices and policies that govern capital markets in order to reduce the worst financial impacts of the climate crisis. It spurs action on climate change as a systemic financial risk—driving the large-scale behavior and systems change needed to achieve a net zero emissions economy. For more information, visit ceres.org and ceres.org/accelerator and follow @CeresNews.