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As Federal Reserve Considers Principles on Climate-related Risk, Groups Support the Principles and Call for Additional Safeguards

WASHINGTON, D.C. — Public Citizen, along with a coalition of financial advocacy, environmental and consumer groups, today called on the Federal Reserve Board of Governors to take rapid action to implement new guidelines for financial institutions aimed at safeguarding the economy from the impacts of climate change. 

At the close of the comment period for the Federal Reserve Board’s draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions, Public Citizen’s comment called for the Fed to improve the guidance it gives to banks by:

  • Explaining in greater detail how financial institutions should account for the unique aspects of climate-related financial risks and integrate those risks into broader risk management structures;
  • Acknowledging limitations of scenario analysis while supporting such analysis for limited objectives; 
  • Detailing measures needed to address risks to the safety and soundness of smaller financial institutions; 
  • Providing clarity around what it means for large financial institutions to align their climate commitments to their internal strategies and additional detail on the risk management benefits of credible net zero transition plans; and 
  • Bringing U.S. climate-related financial risk supervision and regulation practices in line with those at peer central banks.

“The Federal Reserve’s actions mark an understanding that it has an important role to play in regulating how banks deal with the climate crisis,” said Anne Perrault, finance policy counsel with Public Citizen’s Climate Program. “The Fed needs to quickly strengthen and finalize these Principles, then get to work issuing more detailed guidance and examining bank risk-taking in this area more closely.” 

In addition to its own comment, Public Citizen joined a coalition of 68 groups, including the Americans for Financial Reform Education Fund, Sierra Club, Greenpeace, and World Wildlife Fund, in calling for the Federal Reserve to take action. 

“Climate change poses significant risks to the safety and soundness of financial institutions, the financial system, and communities,” the groups write. “The U.S. lags behind much of the world on mitigating climate-related risk. We encourage the FRB to take the lead with its global peers who are actively exploring the need for additional supervisory and regulatory measures to respond to climate risk, including the need for increased attention to capital and liquidity requirements at the largest, most complex institutions.”

The Federal Reserve’s draft Principles are similar to proposals issued over the last 14 months by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. When finalized, the agencies’ Principles will mark a first step toward protecting financial institutions from potential dangers caused by climate change. 

Last week, David Arkush, director of Public Citizen’s Climate Program and Yevgeny Shrago, policy director of Public Citizen’s climate program, released a new report, in partnership with the Roosevelt Institute, entitled Supervising the Transition: How Banking Regulators Can Address the Coming Shift to Net-Zero Emissions. The paper argues that, as reflected in the Principles, when banks make voluntary climate commitments, regulators have a responsibility to assess whether the commitments are aligned with the banks’ internal strategies. The report explains how looking at transition plans helps measure the level of risk faced from the energy transition, as well as management’s ability to build and implement such plans. It also calls on regulators to provide banks with detailed guidance on what regulators will look for in doing this assessment.

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