FDIC Requests Comment on Draft Principles for Climate-related Financial Risks

The FDIC recently issued a request for public comment on draft principles that would provide a high-level framework for managing exposures to climate-related financial risks by large financial institutions (i.e., with over $100 billion in total assets).

More specifically, FDIC views climate change, and the transition to a low carbon economy, as posing unique economic and financial risks threatening the safety and soundness of financial institutions and the stability of the financial system.  Financial institutions are likely to be affected by both physical risks and transition risks associated with climate change.  Physical risks generally 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 (such as higher average temperatures and changes in precipitation patterns). Transition risks generally refer to stresses to certain financial institutions or sectors arising from the shifts in policy, consumer and business sentiment, or technologies associated with the changes necessary to limit climate change. The draft principles are intended to provide a framework for incorporating these climate-related financial risks into a financial institution’s overall risk management framework consistent with existing FDIC rules and guidance.  FDIC has posed fourteen questions related to these principles, categorized into applicability; tailoring; general; current risk management practices; data, disclosures, and reporting; and scenario analysis.  Comments must be received by June 3, 2022.