On December 2, 2022, the Board of Governors of the Federal Reserve System ("Federal Reserve") released draft principles for managing exposures to climate-related financial risks ("Climate Principles").1 The Climate Principles generally are targeted at institutions with over $100 billion in total assets that are regulated by the Federal Reserve, including US branches and agencies of foreign banking organizations with over $100 billion in assets held at the branch or agency.2

Except for the minor points discussed below, the Climate Principles are substantially similar to principles that were proposed by the Office of the Comptroller of the Currency ("OCC") in December 2021 and the Federal Deposit Insurance Corporation ("FDIC") in March 2022. (Please see our earlier Legal Updates for a discussion of the substance of the OCC's principles and FDIC's principles.)

Most notably, the Climate Principles omit some of the commentary on climate-related financial risk that made the documents released by the other agencies sound more like newspaper articles than supervisory guidance. This may reflect refinement based on comments to the OCC's and FDIC's proposals.

Another key difference in the Climate Principles is that they clearly separate the oversight obligations of boards of directors from the risk management obligations of management. This is a perennial issue for the banking industry, and the use of clear and precise language should be appreciated if and when the Climate Principles are finalized.

One governor, Christopher Waller, dissented from the release of the Climate Principles, stating: "... I disagree with the premise that [climate change] poses a serious risk to the safety and soundness of large banks and the financial stability of the United States."3 This type of dissent, while rare at the Federal Reserve, is illustrative of the charged and controversial nature of regulation of climate change in the United States.

The Federal Reserve will accept comments on the Climate Principles until February 6, 2023. We expect the Federal Reserve will coordinate with the OCC and FDIC to issue the Climate Principles as joint supervisory guidance in 2023.

Footnotes

1. 87 Fed. Reg. 75,267 (Dec. 8, 2022), https://www.federalregister.gov/documents/2022/12/08/2022-26648/principles-for-climate-related-financial-risk-management-for-large-financial-institutions.

2. The Federal Reserve regulates state member banks, bank holding companies, savings and loan holding companies, foreign banking organizations with respect to their US operations, and non-bank systemically important financial institutions.

3. Statement by Governor Waller on principles for climate-related financial risk management for large financial institutions (Dec. 2, 2022), https://www.federalreserve.gov/newsevents/pressreleases/waller-statement-20221202.htm.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.