U.S. Regulatory Proposals Should Enhance Climate Related Financial Risk Management and Improve Transparency

This commentary reviews the proposals on Climate Related Financial Risk Management by the U.S. bank regulators (the Federal Reserve, Office of the Controller of the Currency and Federal Deposit Insurance Corporation.

Key highlights include:
• U.S. bank regulatory agencies have published proposals for Climate Related Financial Risk Management Principles, with significant overlap in content and language. The agencies will develop a jointly supported final version of guidelines, which we expect to be released before the end of 2023.

• The proposals define the main components of the recommendations, with the rationale based on the regulatory mandate to address emerging and existing challenges to the "safety and soundness" of the U.S. financial system.

• We note that the proposals would be supportive of DBRS Morningstar's analysis of climate-related and environmental financial risks to banks, recommending the development of coherent policies and processes to manage climate risk, and improving disclosure and transparency in this area

“While we believe that banks in our rated universe already consider climate related financial risks in their underwriting and risk management frameworks, the proposals would likely strengthen bank risk assessments, while increasing transparency.” said Rebecca Clarke, Vice President – Global FIG.