Climate Risk Scorecard
Notable Progress
Some Progress
No Progress
Not Applicable
Federal Reserve System
Notable Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
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 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
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 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
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 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 Fed has consistently affirmed climate as a risk to the financial system. Since last year’s assessment, the Fed has continued to deliver remarks publicly acknowledging the systemic nature of climate-related financial risk:
Vice Chair Michael Barr remarks to U.S. Senate Banking Committee including Fed's work on climate risk (November 2022)
Vice Chair Barr remarks at FSOC meeting regarding the Fed’s two climate-related supervisory priorities and collaboration with the OCC and FDIC in approaching climate-related financial risks (December 2022)
Additionally, the Fed has included the risks presented by climate change to the financial system in its November 2022 Supervision and Regulation Report, November 2022 Financial Stability Report, and 2023 Annual Performance Plan. The agency also joined the Network for Greening the Financial System (NGFS) and its Supervision Climate Committee Chair co-leads the Basel Committee’s Task Force on Climate-Related Financial Risks. Importantly, the Fed published draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions that largely mirror those published by the OCC and FDIC and announced a pilot climate scenario analysis exercise for the six largest U.S. banks, publishing instructions for the scenarios the banks will conduct in 2023.
In addition to these public remarks and publications, Ceres is aware of board members and staff who have offered alternative views on the relevance, extent, or urgency of climate-related financial risks.
Next Steps
Continue to publicly acknowledge the systemic nature of climate-related financial risk in agency speeches and publications.
*These recommendations, all within the Fed’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
Notable Progress
Reasoning
In 2021, the Fed created the Supervision Climate Committee (SCC), the Financial Stability Climate Committee (FSCC), and the System Climate Network to address climate-related risks to financial stability and recommend how the Fed should incorporate climate risk into its existing supervision framework. The SCC engages with domestic stakeholders and other supervisors from a prudential perspective, while the FSCC assesses climate-related risks to financial stability from a macroprudential perspective. In 2021, the Fed appointed staff to lead the SCC and FSCC, and assigned additional full-time staff to each committee. The Federal Reserve Board and the Federal Reserve Bank of New York are also the first participating agencies in the Treasury’s Climate Hub, launched in July 2022.
Next Steps
Continue work within the SCC, FSCC, 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 institutions' internal climate risk management capacity.Â
Establish and announce an internal plan for how the Fed will address climate-related financial risk to its regulated financial institutions, including goals and priorities. Â
*These recommendations, all within the Fed’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 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
In its November 2022 Supervision and Regulation Report, the Fed flagged that it will work with the OCC and FDIC to provide guidance to large banks on the financial risks of climate change, as it is an emerging risk to the safety and soundness of financial institutions and the stability of the financial system. The Fed states the guidance is intended to help large banks identify, measure, monitor, and manage climate-related risk exposure and incorporate those risks into their risk-management frameworks.
Both the November 2022 Supervision and Regulation Report and the November 2022 Financial Stability Report highlight the Fed’s pilot climate scenario analysis exercise, which will assess the resilience of the six largest U.S. banks under different hypothetical climate-related scenarios. The Financial Stability Report also notes that the Fed is engaging with other central banks, international forums such as the Financial Stability Board (FSB) and Network for Greening the Financial System (NGFS), and other U.S. financial regulators through the FSOC’s Climate-related Financial Risk Committee.
In its 2023 Annual Performance Plan, the Fed identified development of a systemwide supervisory approach to address climate-related financial risks as an objective to promote the safety, soundness, and stability of financial institutions by improving forward-looking risk-identification and assessment capabilities that inform policy and supervision. However, the Fed does not provide updates on its climate risk research or management activities on its webpage, and does not provide regular updates on its work or outcomes outside of its scheduled, cumulative reports and assessments.
Next Steps
Establish a designated page on its website to provide updates on completed and ongoing climate risk-related activities, including what the SCC and FSCC are working on (such as what research each is undertaking), announce other staff assigned to the committees, disclose what the committees’ budgets and resources are, and other recommendations in this section. Â
*These recommendations, all within the Fed’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
In January 2023, the New York Fed held an event on equitable growth that focused in part on natural disaster resiliency. The New York Fed also held five invite-only interactive webinars that focused on strategies to finance upgrades to heating, cooling, energy systems, and insulation in New York City’s affordable housing. The webinars followed the publication of a report, Sustainable Affordable Housing: Strategies for Financing an Inclusive Energy Transition. Additionally, the Richmond Fed held an event on how communities are preparing to navigate and build resilience to the impact of extreme weather on local economies.
In May 2022, the Fed, OCC, and FDIC jointly released a notice of proposed rulemaking to amend their regulations implementing the Community Reinvestment Act (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. Recognizing the recent banking crisis, the agencies have not yet published the final rule or indicated when the final rule will be released.
The Fed’s 2022 draft Climate Principles inquired whether it should modify existing regulations and guidance to address the impact of climate-related financial risks on those communities. The Fed has also indicated that a representative from the Division of Community Affairs is assigned to FLEC on climate work, although this role has not been publicly announced. In March 2023, Vice Chair Barr delivered remarks at the National Community Reinvestment Coalition Just Economy Conference highlighting CRA reform priorities for the forthcoming interagency rule, including: advancing the purpose of the statute, addressing changes in the banking sector, providing clarity, consistency and transparency in what counts for CRA credit, and aligning CRA evaluations and data collection to bank size and type.
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 Fed’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 addition to the staff research and webinars highlighted in the 2022 Scorecard, the Fed has continued to participate in discussions centering climate-related financial risk as well as publishing additional research papers:
San Francisco Fed virtual Seminar on Climate Economics (semimonthly)
San Francisco Fed blog Understanding Climate Risk: What We Learned from CDFIs (June 2022)
Fed attended EU-U.S. Joint Financial Regulatory Forum which discussed sustainable finance and management of climate-related financial risks (July 2022)
FRB staff working paper Climate-related Financial Stability Risks for the United States: Methods and Applications (July 2022)
FRB staff working paper Climate Change and Adaptation in Global Supply-Chain Networks (August 2022)
New York Fed Climate Investing Toward Healthy, Inclusive Neighborhoods event (September 2022)
New York Fed staff report 800,000 Years of Climate Risk (September 2022)
San Francisco Fed blog Understanding Climate Risk: What We Learned from Workforce Development Professionals (September 2022)
FRB discussion paper Climate Change and the Role of Regulatory Capital: A Stylized Framework for Policy Assessment (October 2022)
FRB staff working paper Climate Change and Double Materiality in a Micro- and Macroprudential Context (November 2022)
Chicago Fed letter Distributed Ledger Technology, Carbon Accounting, and Emissions Trading (November 2022)
FRB discussion paper What are Large Global Banks Doing About Climate Change? (January 2023)
Atlanta Fed blog Climate-Related Risks and Disasters: Implications for Financial Stability and Inclusion (January 2023)
FRB staff working paper Household, Bank, and Insurer Exposure to Miami Hurricanes: a flow-of-risk analysis (February 2023)
Richmond Fed working paper Long-term Causal Effects of Redlining on Environmental Risk Exposure (March 2023)
Richmond Fed working paper Climate Defaults and Financial Adaptation (March 2023)
Chicago Fed blog Climate Change and Risks to Midwest Agriculture (April 2023)
We note that the publication of these papers does not necessarily indicate concurrence by other members of the research staff or the Board of Governors. In addition to these publications, Ceres is aware of staff papers that have offered alternative views on the relevance, extent, or urgency of climate-related financial risks.
Importantly, the Fed announced in 2022 a pilot climate scenario analysis (CSA) exercise it will conduct to learn how the six largest U.S. banks are assessing and managing climate-related financial risk. The Fed noted that the “[i]nformation collected … will include detailed documentation of governance and risk-management practices, measurement methodologies, data challenges and limitations, estimates of the potential impact on specific portfolios, and lessons learned from this exercise that could inform any future CSA exercises.”
Additionally, the Fed’s Supervision Climate Committee (SCC) and the Financial Stability Climate Committee (FSCC) are also tasked with gathering key data resources, such as acquiring external data and making existing publicly available climate data more useful for modeling and research capabilities. The Fed also formed the System Climate Network (SCN) to collaborate and develop institutional capacity on climate-related financial risks across the Federal Reserve System. In 2022, the Board of Governors and the New York Fed participated in the Treasury’s Climate Data and Analytics Hub research and computing pilot.
However, the Fed has not provided any public update on the work of these committees beyond the broad description provided in the FSOC report and publication of the CSA instructions. There is no designated page on the Fed’s website for either committee or the SCN, and no public detail regarding the agency’s research collaboration with NGFS or the Basel Committee is available.
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 staff 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
Leverage the Regional Fed offices, Governor’s Office, and other Federal partners to access research, share best practices, and assess regional climate impacts and vulnerabilities.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 Fed’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
Notable Progress
Reasoning
In September 2022, the Fed announced that it would conduct a pilot climate scenario analysis (CSA) exercise for the six largest U.S. banks, and in January 2023 published instructions for the scenarios the banks would run later that year. Although the CSA is exploratory and will not have capital consequences, the Fed expects the pilot to assist it and the banks understand climate risks the banks are exposed to, how they are currently managing them, and where the gaps in data and risk management are. This is a significant step in addressing climate-related financial risk and protecting the resiliency of U.S. financial markets. Ceres hopes that future iterations of the CSA will include additional banks and scenarios.
Next Steps
Conduct climate scenario analysis exercises with additional 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 Fed’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
In its draft climate principles, the Fed 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 Fed 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.
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 Fed’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 Fed’s December 2022 draft 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 Fed, OCC, and FDIC have indicated that they intend to publish final climate principles jointly. However, there is no indication when the final guidance will be published.
Next Steps
Finalize the Climate Principles jointly with the OCC and FDIC. 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 bank boards and management on climate risk and why it matters to their bank.Â
Continue to include climate-related financial risk provisions in the Supervision and Regulation Reports to send a consistent message to financial institutions about supervisory expectations.Â
Issue Supervision and Regulation Letters on climate-related financial risk to regulated banks and bank holding companies to acknowledge that climate poses risks to the financial system and individual financial institutions, indicate that it is part of the Fed’s supervisory expectations, and provide guidance on how to identify and monitor those risks. 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
Explicitly integrate climate risk into CAMELS ratings and bank examinations. Â
*These recommendations, all within the Fed’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 Fed’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 Fed has consistently and emphatically affirmed climate as a risk to the financial system. The chair, board members, and Fed staff have delivered numerous speeches and remarks publicly acknowledging the systemic nature of climate-related financial risk:Â
Governor Lael Brainard speech on Why Climate Change Matters for Monetary Policy and Financial Stability (November 2019)Â
Current SCC Chair Kevin Stiroh speech at Risks, Opportunities, and Investment in the Era of Climate Change Conference (March 2020)Â
Chair Jerome Powell acknowledgment that climate is a risk to the financial system (November 2020)Â
Governor Brainard remarks on climate risk in the Financial Stability Report (November 2020)Â
Governor Brainard speech at the Financial System & Climate Change webinar (December 2020)Â
Governor Brainard speech at 2021 IIF U.S. Climate Finance Summit (February 2021)Â
Governor Brainard speech at the Ceres Transform Tomorrow Today Conference (March 2021)Â
San Francisco Fed President Mary Daly remarks on Climate Risk and the Fed: Preparing for an Uncertain Certainty (June 2021)Â
Former Vice Chair for Supervision Randal Quarrels speech at the FSB Venice International Conference on Climate Change (July 2021)Â
Governor Brainard speech on Building Climate Scenario Analysis on the Foundations of Economic Research (October 2021)Â
Chair Powell statement on the FSOC report (October 2021)Â
Fed statement issued in support of the NGFS Glasgow Declaration (November 2021)Â
Chair Powell affirmation at nomination hearing that it is “very likely that climate stress scenarios...will be a key tool going forward” (January 2022)Â
Additionally, the Fed has included the risks presented by climate change to the financial system in several agency publications, including its 2020 Financial Stability Report and 2020 Supervision and Regulation Report, although it was not included in its 2022 Supervision and Regulation Report. The agency also joined the Network for Greening the Financial System (NGFS), provided a detailed update to the FSOC on its activities related to climate risk for the FSOC Report on Climate-Related Financial Risk (FSOC report), and endorsed the final FSOC Report released in October 2021. The Fed’s Supervision Climate Committee Chair Stiroh also co-leads the Basel Committee’s Task Force on Climate-Related Financial Risks.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
Several regional Fed offices are researching and producing educational materials on climate risk to the financial system. The New York Fed has a public webpage highlighting events and work on the impact of climate on communities. In May 2022, the New York Fed held a conference presenting research on the disproportionate impact of climate risks on low-income communities, and a symposium on the implications of climate change for monetary policy, labor and capital reallocation, trade and global production, and interest rates.Â
Both the Chicago Fed and the Richmond Fed have hosted webinars on climate-related financial risks, and the San Francisco Fed holds a semimonthly virtual Seminar on Climate Economics . Likewise, the Chicago Fed and San Franscisco Fed have also released analyses on risks faced by the market from climate change. Fed staff have also released dozens of research papers on climate risk and climate-related issues over the past two decades. Â
Additionally, the Fed created two committees to support its climate risk work: the Supervision Climate Committee (SCC) and the Financial Stability Climate Committee (FSCC). While the committees’ primary mandates focus on incorporating climate risk into existing supervision, they are also tasked with gathering key data resources, such as acquiring external data and making existing publicly available climate data more useful for modeling and research capabilities. The SCC engages with domestic stakeholders and other supervisors from a prudential perspective, while the FSCC assesses climate-related risks to financial stability from a macroprudential perspective. The Fed also formed the System Climate Network to collaborate and develop institutional capacity on climate-related financial risks across the Federal Reserve System. Â
In its update for the FSOC report, the Fed stated that it is developing a program of scenario analyses to evaluate the potential economic and financial risks posed by different climate outcomes, although these will not be deployed in 2022 and this effort is a short-term exercise different from the scenario analyses other central banks are performing. The agency also asserted that it is identifying additional data, technology, and modeling resources needed for efforts to understand the financial and economic risks associated with climate change. This includes information available through other U.S. government agencies. Â
However, the Fed has not provided any public update on the work of these committees other than the broad description provided in the FSOC report. There is no designated page on the Fed’s website for either committee, and no public detail regarding the agency’s research collaboration with NGFS or the Basel Committee. Although Fed personnel has indicated to Ceres that more research is underway, there is little information in the public domain on progress since last year on identifying, inventorying, and planning to procure the data needed to evaluate the climate-related financial risk exposures to the financial market, as advised under FSOC recommendation 2.1. Although the Fed described some of its activities in the FSOC report in broad strokes, it is not publicly clear whether the Fed has moved beyond beginning to identify the data necessary to evaluate risk toward identifying data it may already have and developing a plan to obtain data it does not have. Â
Next Steps
Increase transparency and publicly provide information on its data collection and research. Â
Provide detailed information on what actions the Fed is taking regarding its conclusions on what data is necessary to assess climate risk and provide its plan for collecting such data. Â
Keep the public informed while working with state and federal regulators, the Network for Greening the Financial System (NGFS), the Basel Committee, and other working groups that have initiated data gathering and assessment.  Â
*These recommendations, all within the Fed’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
In its initial 2020 Advanced Notice of Proposed Rulemaking under the Community Reinvestment Act (CRA), the Fed inquired whether it should “include disaster preparedness and climate resilience as qualifying activities in certain targeted geographies” in its final rule. Â
In May 2022, the Fed, FDIC, and OCC jointly released a notice of proposed rulemaking (NPR) to amend CRA implementing regulations. 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 low- and moderate-income (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 thus 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, according to the proposed rule. 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 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
Ensure the inclusion of climate resiliency activities survives and is strengthened in the final CRA rule. Â
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 Fed’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
Notable Progress
Reasoning
As noted in Section II, the Fed created the Supervision Climate Committee (SCC), the Financial Stability Climate Committee (FSCC), and the System Climate Network to address climate-related risks to financial stability and recommend how the Fed should incorporate climate risk into its existing supervision framework. Â
The Fed appointed Kevin Stiroh as Chair of the SCC in January 2021, and Adele Morris as Co-Chair of the FSCC in September 2021.
Next Steps
Create a designated page on its website for the Supervision Climate Committee and the Financial Stability Climate Committee to provide a detailed public update on what these committees are working on. Â
Provide an update on the standing up of the SCC, explain how the SCC and FSCC work, describe what each committee is focusing on (including what research each is undertaking), announce other staff assigned to the committees, and disclose what the committees’ budgets and resources are. Â
*These recommendations, all within the Fed’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 the FSOC’s October 2021 report, the Fed stated that it is working to understand how financial institutions monitor and manage climate-related risk. The SCC is conducting internal analysis and public engagement, including discussions with the largest, most complex financial institutions, to better understand how climate-related risks impact financial institutions, and how institutions identify, measure, monitor, and manage the financial risks of climate change. Â
However, the Fed does not specify whether it will use the resulting information to review and potentially enhance its existing public reporting requirements. Although the Fed 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
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
No Progress
Reasoning
The Fed indicated in December 2021 that it will review comments to the OCC’s draft Principles for Climate-Related Financial Risk Management for Large Banks as it moves towards developing its own supervisory expectations on climate risk management. Chair Powell has also indicated the Fed’s intention to have guidance at some point in the future, and that climate stress tests will likely be a “very important priority” in Fed supervision in the coming years. However, as of the publication of this scorecard, the Fed has not begun climate stress testing or scenario analyses, and has yet to issue a notice of proposed rulemaking, supervisory guidance, or a request for information to clarify risk management expectations, assess regulatory gaps, or review financial institutions’ efforts to address climate-related financial risks, as enumerated in FSOC Recommendations 4.6, 4.7, and 4.8. Â
Next Steps
Consider amending uniform disclosure systems such as the Call Report with other FFIEC members. Â
Work with OCC and FDIC to release supervisory guidance on climate-related financial risk for its regulated entities, and follow up with more detailed and enforceable regulations. Â
Consider continuing to include climate-related financial risk provisions in the Fed’s Supervision and Regulation Reports to send a consistent message to the financial institutions that it is serious about incorporating climate risk into its supervisory expectations.Â
*These recommendations, all within the Fed’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 Reserve System (Federal Reserve or Fed) is the central bank of the United States and one of the largest central banks in the global financial system. The Fed is comprised of the Board of Governors and 12 regional banks, which are the operating arms of the Federal Reserve System. Each reserve bank operates within its own geographic area of the U.S., gathering data and other information about the businesses and the needs of local communities. That information is then factored into policy decisions by the Federal Open Market Committee (FOMC), which sets national monetary policy and makes all decisions regarding the conduct of open market operations, and the Federal Reserve’s Board of Governors, which oversees the reserve banks and ensures the Fed fulfills its statutory responsibilities.Â
The Fed’s mission is to foster the stability, integrity, and efficiency of the nation’s monetary and financial systems, in order to maximize economic performance. It sets U.S. monetary policy, supervises and regulates financial institutions, monitors financial system risks, and promotes consumer protection. Of particular importance, it supervises bank holding companies and other key financial institutions. The Fed’s potential impact on risk response, management, and mitigation is enormous. Its response to the coronavirus pandemic, to use a current example, underscores the scope and scale of its potential to impact every aspect of the U.S. financial system. Â
The Fed is responsible for ensuring that supervised financial institutions are resilient to all material risks, both macroprudential and microprudential. Climate risk – and its associated economic and financial market consequences – directly and indirectly impacts bank balance sheets, strategies, and operations, and could increase credit, market, liquidity, and operational risk at financial institutions. Because this will implicate the safety and soundness of both individual firms and the financial system as a whole, the Fed must understand and address these risks.
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