FDIC Drafts Principles for Climate-Related Risk Management

The Federal Deposit Insurance Corporation (FDIC) has requested public comment on a proposed set of principles on climate-related risks relating to large financial institutions.

The draft principles would provide a high-level framework for the safe management of exposures to climate-related financial risks, the corporation said in a statement.

The principles, which are intended for institutions with over $100 billion in total assets, were developed to encourage large companies to consider incorporating climate-related financial risks into risk management frameworks.

The development follows the landmark proposal from the Securities and Exchange Commission to introduce climate risk disclosure requirements for listed companies, and a proposal put forward by the Officer for the Comptroller of the Currency in December 2021.

Martin Gruenberg, acting chairman of the FDIC board of directors, said: “Climate-related financial risks pose a clear and significant risk to the US financial system and, if improperly assessed and managed, may pose a threat to safe and sound banking and financial stability. As a result, there is an urgent need for this Statement of Principles.”

Climate risks are as important as a financial institution’s safety and soundness, the FDIC indicated, and the overall financial system could be adversely affected by weaknesses in how climate-related risks are identified, measured, monitored, and controlled.

Gruenberg added: “Future guidance will continue to be appropriately tailored to reflect differences in financial institutions’ circumstances, including size, complexity of operations, and business model.

“Through this and any subsequent climate-related financial risk guidance, the FDIC will continue to encourage financial institutions to prudently meet the financial services needs of their communities.”

The FDIC has encouraged all interested parties to comment within 60 days of publication in the Federal Register.