Climate Risk Scorecard
Notable Progress
Some Progress
No Progress
Not Applicable
Federal Deposit Insurance Corporation
Notable Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).Â
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.Â
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have made information and data available to the public.Â
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).Â
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).Â
Notable Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities. Â
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).Â
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). Â
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). Â
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk. Â
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  Â
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  Â
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  Â
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)   Â
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)Â
No Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities. Â
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).Â
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).Â
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).Â
No Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. Â
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).Â
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).Â
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).Â
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).Â
Notable Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.                Â
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).Â
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).Â
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
Notable Progress
Reasoning
The FDIC has affirmed climate as a risk to the financial system. Since last year’s scorecard, Chair Martin Gruenberg has made additional public remarks acknowledging the systemic nature of climate-related financial risk:
Chair Gruenberg remarks at the American Bankers Association Annual Convention on the financial risks of climate change (October 2022)
Chair Gruenberg remarks at the International Association of Deposit Insurers conference on the importance of deposit insurers considering climate risk (October 2022)
Chair Gruenberg remarks the National Association of Affordable Housing Lenders (November 2022)
Chair Gruenberg testimony in front of the U.S Senate Banking Committee on FDIC’s continued efforts to address climate risk “through a thoughtful and measured approach” (November 2022)
Chair Gruenberg remarks at an FSOC Open Session regarding climate-related financial risks and collaboration with the Fed and OCC in approaching climate-related financial risks (December 2022)
Additionally, the FDIC addressed climate-related risks to banks as an area of concern and an emerging issue in its 2021 Annual Report and 2022 Annual Performance Plan, and a key risk to banks in its 2022 Risk Review. The FDIC also announced the interdisciplinary Climate Working Group, involving senior management across the FDIC, which will provide research and analysis on climate-related financial risks. The FDIC also became a member of the Network for Greening the Financial System (NGFS) in April 2022.
Most notably, the FDIC published, with the Fed and OCC, draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions in March 2022 and requested feedback on the principles. These climate principles describe the physical and transition risks financial institutions are likely to face from climate change and outline general actions they should take to address these risks.
Next Steps
Continue to publicly acknowledge the systemic nature of climate-related financial risk in agency speeches and publications. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications (outside of the FSOC report).Â
Some Progress
Reasoning
In February 2022, the FDIC established the interdivisional, interdisciplinary Climate Working Group, and has indicated that staff are developing subject matter expertise in this area. However, the agency has not publicly announced appointments to lead and staff the working group.
Next Steps
Establish an office and/or committee(s) to focus on climate-related financial risk.Â
Appoint senior leadership and staff to the office and/or committee(s) focusing on climate-related financial risk.Â
Continue work within the CFRAC, FLEC, Basel, NGFS, and other interagency climate risk working groups.Â
Continue internal staff education and training on climate-related financial risks. Â
Train bank examiners on climate-related financial risk and how these risks fit within existing risk frameworks. Â
Train CRA examiners on the new community development definition for climate resiliency activities.Â
Support expansion of financial institution internal climate risk management capacity.Â
Establish and announce an internal plan for how the FDIC will address climate-related financial risk to its regulated financial institutions, including goals and priorities. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).Â
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.Â
Some Progress
Reasoning
The FDIC has addressed climate-related financial risks as an area of concern in multiple agency publications, including its 2021 Annual Report, 2022 Annual Performance Plan, 2022 Risk Review, and 2022 Annual Report. The FDIC also announced its interdisciplinary Climate Working Group in February 2022, added climate-related financial risk to its Risk Inventory as part of the FDIC’s Enterprise Risk Management (ERM) program in November 2022, and in April 2023 noted its participation in the efforts of the Council of Inspectors General on Financial Oversight to assess FSOC’s efforts to address the requirements of Executive Order 14030.
In addition to the public statements highlighted in 2022’s Scorecard, Chair Gruenberg has since delivered remarks at the October 2022 ABA Annual Convention on the financial risks of climate change; the October 2022 IADI conference on the importance of deposit insurers considering climate risk; and the November 2022 National Association of Affordable Housing Lenders. The Chair also testified in front of the U.S Senate Banking Committee in November 2022 on FDIC’s continued efforts to address climate risk “through a thoughtful and measured approach” and made remarks at FSOC’s December 2022 Open Session regarding climate-related financial risks.
The FDIC does not have a designated webpage for its Climate Working Group. We are not aware of any regular updates on its work outside of its scheduled, cumulative reports and assessments.
Next Steps
Establish a designated webpage to provide updates on completed and ongoing climate risk-related activities, including what the work the FDIC has undertaken, staff assigned to the issue, what budget and resources are allocated for the work, and other recommendations in this section. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agencies have made information and data available to the public.Â
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).Â
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).Â
Some Progress
Reasoning
Research highlighted in the FDIC’s 2022 Annual Performance Plan included an assessment of the effects of climate events on low- and moderate-income areas. Likewise, the Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions published by the FDIC in March 2022 inquired whether the FDIC should modify existing regulations and guidance to address the impact of climate-related financial risks on those communities.
In May 2022, the FDIC, Fed, and OCC jointly released a notice of proposed rulemaking (NPR) to amend their regulations implementing the CRA, which proposes the inclusion of climate resiliency activities to assist communities prepare for and adapt to climate risks. This is an important step towards climate justice for low- to moderate-income communities, as these communities are more likely to be located in vulnerable areas impacted by natural disasters, which are increasing in frequency and intensity, and are therefore disproportionately burdened by the associated financial risks and losses. During the National Community Reinvestment Coalition’s 2023 Just Economy Conference, Chair Gruenberg noted the FDIC’s role in understanding the risks climate poses to the services banks provide to communities. The agencies have not yet published the final rule or indicated when the final rule will be released.
Similarly, the FDIC has not indicated whether it is actively engaged with FLEC and other FLEC members to understand the impacts of climate-related financial risks on vulnerable communities.
Next Steps
Actively and transparently engage in interagency coordination on assessing risk to financially vulnerable communities, provide updates, and publish findings, such as advances made with the FLEC Climate Resiliency Group.Â
Consider the policy implications of climate-related financial risk supervision and regulation on LMI and BIPOC communities.Â
Ensure the inclusion of climate resiliency activities survives and is strengthened in the final CRA rule. Â
Provide recommendations and guidance to regulated financial institutions, including in the final Climate Principles, on how to assess climate-related financial risks specific to vulnerable and underserved communities and how to avoid inadvertently engaging in discriminatory practices (i.e. bluelining). Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities. Â
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).Â
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). Â
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). Â
Some Progress
Reasoning
In 2021, the FDIC’s Center for Financial Research issued a call for papers on finance and climate change for the FDIC’s Annual Bank Research Conference, which included several sessions and papers on finance and climate change. In 2022, the FDIC began working with both the Financial Stability Board’s Resolution Steering Group and the Basel Committee on Banking Supervision’s Climate Committee. The FDIC also assigned a staff member to FSOC’s Climate-Related Financial Risk Committee.
The FDIC’s 2021 and 2022 Annual Performance Plans note the agency is conducting research related to the potential impact of climate change on the financial sector and the effects of climate events on local economic and banking conditions, including a review of six of the most severe weather events in U.S. history. However, the FDIC has not made this information public, including whether it has identified and reviewed the information it has or needs to conduct climate risk assessments, and what plan it has made for obtaining additional necessary information.
In June 2022, the FDIC published a Staff Studies Report on Severe Weather Events and Local Economic and Banking Conditions. The report summarizes the net effect of six of the most severe weather events over the past two decades on local economic conditions and the structure of the local banking landscape, including the impacts on low- to moderate-income communities and community banks. In July 2022, the FDIC attended the EU-US Joint Financial Regulatory Forum, where participants discussed climate-related financial risks and the European Central Bank presented the aggregate results of its climate risk stress test.
Next Steps
Provide updates on the agency’s climate risk-related data collection and research, what additional data is needed, and its plan for collecting such data.Â
Provide easily searchable access to white papers, blogs, infographics, etc. that demonstrate data collection and research on climate-related financial risk.Â
Issue a request for information on available data, models, or other information that could be used, in addition to existing data, to inform the agencies on climate-related risks to the financial system and the economy, including data on the adverse financial effects of climate on LMI communities.Â
Conduct a horizontal review of large financial institutions that have significant exposure to climate risk to gain a better understanding of strategies and practices for risk identification and management, grouping banks with large exposures to climate risk or banks with loan concentrations in particularly vulnerable geographic areas. Â
Conduct a climate risk policy sprint with FFIEC members to develop common definitions and review current and evolving risks to financial institutions. Â
Develop a Climate Risk Assessment Tool similar to the Cybersecurity Assessment Tool with FFIEC members to help financial institutions (particularly smaller, community financial institutions) identify their climate-related financial risks associated, as well as their preparedness under various climate scenarios and actionable steps to mitigate risks.Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk. Â
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  Â
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  Â
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  Â
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)   Â
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Design and conduct climate scenario analysis exercises with financial institutions to assess safety and soundness and ability to withstand climate impacts, starting with those over $100 billion in assets, moving to over $50 billion then over $10 billion, and eventually to all regulated financial institutions irrespective of asset size. Â
Conduct climate scenario analysis exercises and stress tests that include physical and transition risks, disorderly transition, concurrent and consecutive risks, insurance gaps, impacts on multiple traditional risk categories, short- and long-term horizons, etc.Â
Increase capital requirements or buffers where the results indicate insufficient levels to absorb losses.Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities. Â
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).Â
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).Â
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).Â
No Progress
Reasoning
Although the FDIC has the authority to amend uniform disclosure systems such as the Call Report with other Federal Financial Institutions Examinations Council members, there is no public information to indicate any action in this area. In its climate principles, the FDIC requested information on what existing requirements could be modified to capture exposure to climate-related financial risks but did not specify whether or how it will use the resulting information to review and potentially enhance its existing public disclosure requirements.
Next Steps
Amend uniform disclosure systems such as the Call Report with other FFIEC members. Â
Amend the Uniform Bank Performance Report (UBPR) to create standardized measurements of climate risk at individual institutions as well as risks among peer groups and in the aggregate, allowing examiners to assess a bank’s financial condition and risks and to compare an institution with its peers. As a publicly accessible report, the UBPR is widely used by industry to conduct a peer analysis. Â
Issue guidance that provides standards – such as the TCFD framework – for financial institutions to ascertain data on their GHG emissions to guarantee that disclosures among institutions are consistent, comparable, and reliable.Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. Â
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).Â
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).Â
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).Â
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).Â
Some Progress
Reasoning
The FDIC’s March 2022 draft Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions outlines guidance it expects its regulated entities to follow regarding climate risk management. The FDIC, OCC, and Fed have indicated that they intend to publish final climate principles jointly. However, there is no indication when the final guidance will be published.
Recognizing the seriousness of severe weather impacts on financial institutions and customers, within the last year, the FDIC released several guidance letters outlining steps for regulatory relief and recovery in affected areas including, Puerto Rico, Mississippi, Arkansas, Tennessee, and Guam. In accordance with their guidance, FDIC-supervised financial institutions can receive CRA credit for community development loans, investments, and services in support of disaster recovery.
Next Steps
Finalize the Climate Principles jointly with the Fed and OCC. Â
Issue additional detailed, binding guidance on climate risk management, including scenario analysis guidance, net zero transition plans, and what banks need to do to meet their net zero commitments. Â
Expand guidance to smaller financial institutions, and account for the unique risks (i.e. geographic and sectoral concentration) these institutions face, while tailoring guidance to reflect these differences and supporting the education of banks boards and management on climate risk and why it matters to their bank.Â
Issue guidance through the FFIEC to raise awareness of climate risks, encourage financial institutions to integrate climate risks into their enterprise risk frameworks, and provide guidance on how to measure and mitigate risks, including through best practices.Â
Issue an exam manual dedicated to or incorporate into an existing exam manual the identification and management of climate-related financial risks based on established risk factors. Â
Explicitly integrate climate risk into CAMELS ratings and bank examinations. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.                Â
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).Â
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
No Progress
Reasoning
Ceres is not aware of any progress in this category.
Next Steps
Propose and issue detailed regulation for climate-related financial risk management requirements.Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).Â
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).Â
Notable Progress
Reasoning
The FDIC has affirmed climate as a risk to the financial system. Chair Martin Gruenberg has made public remarks acknowledging the systemic nature of climate-related financial risk, and listed climate risk as a top challenge for the agency:Â
Chair Gruenberg remarks on the financial stability risks of climate change (December 2020)Â
Former Chair Jelena McWilliams Q&A on the FDIC’s climate change research, aimed at understanding climate change’s effect on LMI communities and its implications for the safety and soundness of banks (March 2021)Â
Chair Gruenberg announcement that climate is a 2022 priority (February 2022)Â
Additionally, the FDIC addressed climate-related risks to banks as an area of concern and an emerging issue in its 2021 Annual Report and 2022 Annual Performance Plan, and a key risk to banks in its 2022 Risk Review. The FDIC also announced the interdisciplinary Climate Working Group, involving senior management across the FDIC, which will provide research and analysis on climate-related financial risks. The FDIC also became a member of the Network for Greening the Financial System (NGFS) in April 2022.Â
Most notably, the FDIC published draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions in March 2022 (climate principles) and requested feedback on the principles. These climate principles describe physical and transition risks financial institutions are likely to face from climate change and outline general actions they should take to address these risks.Â
However, the stance of the FDIC under its previous chair creates some ambiguity in the public eye as to where the agency stands on the systemic risk of climate to the financial system. Ceres believes the FDIC should make clear with continued public affirmations that addressing climate risk is a priority for the agency.Â
Methodology
Recognizing that climate change poses a financial stability risk is a critical first step for all financial regulators and will send an important message to all financial market stakeholders. Such statements are particularly important, given the complex nature of climate risks and continuing ambiguities about the extent to which the issue falls under specific agency mandates.Â
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications outside of the FSOC report.Â
Some Progress
Reasoning
In 2021, the FDIC’s Center for Financial Research issued a call for papers on finance and climate change for the FDICs Annual Bank Research Conference, which included several sessions and papers on finance and climate change. In 2022, the FDIC began working with both the Financial Stability Board’s (FSB) Resolution Steering Group and the Basel Committee on Banking Supervision’s (BCBS) Climate Committee. The FDIC also assigned a staff member to FSOC’s Climate-Related Financial Risk Committee. Â
The FDIC’s 2021 and 2022 Annual Performance Plans note the agency is conducting research related to the potential impact of climate change on the financial sector and the effects of climate events on local economic and banking conditions, including a review of six of the most severe weather events in U.S. history. FDIC personnel indicate this research includes subgroups in the FDIC’s Climate Working Group researching how climate risk impacts certain sectors of the economy and banking system; different policies regarding how risk should be thought about in those contexts; how to develop internal education throughout the FDIC; and developing a research agenda to obtain and analyze data. Â
However, the FDIC has not made this information public, including whether it has identified and reviewed the information it has or needs to conduct climate risk assessments, and what plan it has made for obtaining additional necessary information.Â
Next Steps
Publicly describe the status of collecting and reviewing climate risk research, including whether it has identified and reviewed the information it has or needs to assess climate risk, and what plans it has made for obtaining additional necessary information. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
Producing quality research and data is critical to assessing and addressing climate-related financial risks. As stated in the FSOC report, “Analyzing climate-related financial risks begins with measuring and assessing risks from climate impacts. To do this, data is needed that captures the drivers of physical and transition risks that could impact households, businesses, the economy, and the financial sector (page 48).” We incorporated this new category in the 2022 Scorecard to respond to these critical data gaps.Â
We assessed the extent to which the agency has advanced work to make progress on FSOC Recommendation 2.1:Â Â
“Identif[y] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets within the context of each FSOC member’s mandate and authorities; Â
Perfor[m] an internal inventory of currently collected and procured data and its relevance for climate risk assessments; and Â
Develo[p] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.”Â
Some Progress
Reasoning
Research highlighted in the FDIC’s 2022 Annual Performance Plan included an assessment of the effects of climate events on low- and moderate-income areas. In 2022, Chair Gruenberg announced that strengthening the Community Reinvestment Act (CRA) is a priority for the agency. Â
Likewise, the Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions published by the FDIC in March 2022 inquired whether the FDIC should modify existing regulations and guidance, such as CRA rules, to address the impact of climate-related financial risks on those communities. The FDIC’s climate principles also requested information on how financial institutions currently consider the impacts of climate-related financial risk mitigation strategies and financial products on LMI and other disadvantaged communities. Â
In May 2022, the FDIC, Fed, and OCC jointly released a notice of proposed rulemaking (NPR) to amend their regulations implementing the CRA. This NPR updates how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. This is an important step towards climate justice for LMI communities, as these communities are more likely to be located in vulnerable areas impacted by natural disasters, which are increasing in frequency and intensity, and are therefore disproportionately burdened by the associated financial risks and losses.Â
For the first time, loans, investments, or services that promote climate resiliency and disaster preparedness qualify as community development activities. These activities are those that benefit residents in one or more of the targeted census tracts, do not displace or exclude LMI residents in those tracts, and are conducted in conjunction with a government plan or initiative focused on disaster preparedness or climate resiliency that includes an explicit focus on benefitting a geographic area that includes that tract. Activities that qualify may thus include funds to family farmers facing drought or LMI communities shifting to renewable energy resources. Similarly, disaster preparedness and climate resiliency activities in Native Land Areas qualify as community development activities if they are specifically targeted to and conducted in Native Land Areas, benefit LMI residents in the area, do not displace or exclude LMI residents in the area, and are conducted in conjunction with a government plan or initiative focused on disaster preparedness or climate resiliency that benefits residents of that area. Â
Additionally, the NPR includes numerous questions related to the inclusion of climate resiliency, on which the agencies request feedback. These questions include whether any additional criteria is necessary to ensure LMI communities benefit from disaster recovery activities; how climate resiliency and disaster preparedness activities should be tailored to directly benefit LMI communities; whether activities that promote energy efficiency should be included in the definition of climate resiliency and disaster preparedness, or included under affordable housing definitions; and whether certain climate resiliency and disaster preparedness activities that benefit LMI communities should qualify regardless of residence in targeted geographies.Â
Next Steps
Actively and transparently engage with FLEC to assess the resilience of financially vulnerable populations and assign specific staff to work with FLEC on these issues. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
The FSOC report highlights the imperative to assess climate risks on “financially vulnerable communities,” given that “climate change disproportionately affects financially vulnerable populations potentially including lower-income communities, communities of color, Native American communities, and other disadvantaged or underserved communities.” This troubling reality is further compounded by the fact that vulnerable communities are “less likely to have the resources to protect and guard against damage to their properties or adequately deal with loss of income from an adverse climate or weather event (page 22).” While the significance of this issue is emphasized, it is qualified by an important warning against measures or actions that may unintentionally worsen existing inequalities.Â
We assessed the extent to which each agency, consistent with its mandate, authorities, and its membership in the Financial Literacy and Education Commission (FLEC), has advanced work to make progress on FSOC Recommendations 1.8 and 1.9: Â
“members, consistent with their mandates and authorities, evaluate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8)Â
“Treasury Department engage other members of the Financial Literacy and Education Commission (FLEC) to analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” (FSOC 1.9). Â
FLEC members include the Office of the Comptroller of the Currency, Federal Reserve, the Federal Deposit Insurance Corporation, National Credit Union Administration, Securities and Exchange Commission, Commodity Futures Trading Commission. Â
Some Progress
Reasoning
In February 2022, the FDIC established the interdivisional, interdisciplinary Climate Working Group, and has indicated that staff are developing subject matter expertise in this area. Â
Although the FDIC has not publicly announced appointments to lead and staff the working group, FDIC personnel have indicated to Ceres that several senior staff have been designated to lead and staff the Climate Working Group. Â
Next Steps
Create a designated webpage for public updates on its climate-related financial risk research. Â
Ensure the inclusion of climate survives and is strengthened in the final CRA rule. Â
Publicly announce which senior staff it has assigned to the Climate Working Group and provide public details on what the working group has accomplished so far, which other staff have been assigned to the working group, and what the working group’s budget and resources are. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
It is urgent that agencies establish sustainable, well-resourced capacity at the political and technical levels to address climate risk to meet the scale of the challenge and deliver on the administration and FSOC commitments.
We assessed the extent to which the agency has appointed dedicated staff to address climate risk to execute the agency’s climate commitments and FSOC recommendations. We assess, for example, the role, authority, and human and financial resources provided to staff dedicated to work on climate risk.Â
No Progress
Reasoning
In its climate principles, the FDIC requested information on what existing requirements could be modified to capture exposure to climate-related financial risks, but did not specify whether or how it will use the resulting information to review and potentially enhance its existing public disclosure requirements. Although the FDIC has the authority to amend uniform disclosure systems such as the Call Report with other Federal Financial Institutions Examinations Council (FFIEC) members, there is no public information to indicate any action in this area.Â
Next Steps
Ensure the FDIC’s final climate principles and any subsequent detailed guidance contain disclosure requirements. Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. In response, the FSOC recommended that members:Â
“review their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities, consistent with their mandates and authorities.” (FSOC 3.1) Â
“consider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the Task Force on Climate-Related Financial Disclosure (TCFD)” (FSOC 3.2)Â
“consider whether such disclosures should include disclosure of GHG emissions” (FSOC 3.4)Â
Following on FSOC Recommendations 3.1, 3.2, 3.3, and 3.4, we assessed the extent to which the agency has enhanced public reporting requirements, consistent with its statutory mandates.Â
Some Progress
Reasoning
The FDIC’s March 2022 Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions outlines guidance it expects its regulated entities to follow regarding climate risk management. In a press release accompanying the publication of these climate principles, Chair Gruenberg noted that FDIC plans to elaborate on each of these principles in subsequent guidance. However, these initial climate principles are not binding, and there is no public indication whether future guidance will be. Â
Next Steps
Prioritize climate-related financial risk as a major strategic challenge, such as by including climate risk management under Strategic Goal 2 in the FDIC’s 2022-2026 Strategic Plan. Â
Amend uniform disclosure systems such as the Call Report with other FFIEC members. Â
Ensure subsequent detailed guidance is explicitly binding under the FDIC’s safety and soundness authority and is incorporated into risk management examination policies.Â
*These recommendations, all within the FDIC’s mandate and authority, are designed to address climate-related financial risks and protect our financial institutions, financial system and communities.Â
Methodology
Supervision and regulation of climate risk is urgently needed to ensure the resilience of supervised entities and our financial system. Â
Following FSOC Recommendations, we assessed the extent to which the agency has “clarified or enhanced risk management expectations, guidance and requirements (FSOC 4.8).” We will also consider if agencies have:Â
“reviewed regulated entities’ efforts to address climate-related risks (FSOC 4.6)Â
“reviewed existing regulations, guidance and regulatory reporting to identify where clarifications and enhancements are needed” (FSOC 4.7)Â
The Federal Deposit Insurance Corporation (FDIC) is a government corporation providing deposit insurance to depositors in U.S. commercial banks and savings banks, individually and together. The FDIC coordinates with the Federal Reserve, the OCC, and state banking regulators to maintain the safety and soundness of the U.S. banking sector. The FDIC is also responsible for protecting the Deposit Insurance Fund (DIF) – the reserve of money devoted to insuring deposits of individuals covered by the FDIC – from threats to the banking system. Â
If climate risk remains unaddressed in the economy by regulators, banks across the country will face credit and liquidity risks throughout their lending portfolios and operations. Large increases in loan defaults could cause bank failures, requiring FDIC intervention. If banks start to fail, public confidence in the DIF itself and its federal guarantees could be threatened. Â
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