The Federal Deposit Insurance Corporation (FDIC) Board has approved a proposed Statement of Principles (SoP) for climate-related financial risk management for large financial institutions. The purpose of the SoP is to provide a high-level framework for the safe and sound management of financial institutions’ exposure to climate-related financial risks, consistent with the risk management framework described in existing FDIC rules and guidance.
This announcement followed closely behind the SEC’s proposal to expand disclosures for public companies relating to climate change and climate-related risks.
According to the statement from FDIC Acting Chair Martin Gruenberg accompanying the proposed SoP, this new framework is designed with consideration for the needs, interests and responsibilities of consumers, as well as financial institutions big and small. The SoP seeks to have financial institutions mitigate the impact of climate-related risks on the economy more broadly, and low- and moderate-income households and communities specifically.
“The effects of climate change and the transition to reduced reliance on carbon-emitting sources of energy present emerging economic and financial risks to the safety and soundness of financial institutions and the stability of the financial system,” Gruenberg said. “Financial institutions are likely to be affected by both the physical risks and transition risks associated with climate change…These climate-related financial risks pose a clear and significant risk to the U.S. financial system and, if improperly assessed and managed, may pose a threat to safe and sound banking and financial stability.”
These new SoP seeks to limit increased expectations of smaller financial institutions by limiting the current proposal to only those financial institutions with total consolidated assets over $100 billion. This is meant to alleviate the need to spend any additional resources and expertise of smaller, community banks on identifying and measuring these climate-related financial risks.
Gruenberg also made it clear the FDIC intends to elaborate on these proposed SoP in future guidance while continuing to take appropriate consideration for financial institutions’ differing circumstances, including size, complexity of operation, and business model.
The proposed SoP has been published in the Federal Register for public comment.