The major US banking regulators, including the Board of Governors of the Federal Reserve System (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), have announced the withdrawal of the interagency Principles for Climate-Related Financial Risk Management for Large Financial Institutions. This framework was initially established to assist large banks in managing climate-related risks.
Introduced in 2023, the principles aimed to support financial institutions with over $100 billion in assets in addressing both the physical and transition risks associated with climate change. They provided guidance for developing strategies, deploying resources, and building capacity to identify, measure, monitor, and control climate-related financial risks effectively.
At the time of their introduction, the agencies highlighted that the financial soundness of institutions could be compromised by inadequate management of climate-related financial risks. The interagency framework was intended to offer a joint high-level approach for managing such exposures, without prohibiting or discouraging banks from serving any specific customers.
In their recent communication, however, the Fed, FDIC, and OCC stated they no longer consider specific principles for managing climate-related financial risk necessary. They argued that existing safety and soundness standards already require financial institutions to maintain effective risk management practices. The Fed also noted in a memo to its staff that the climate principles might distract large financial institutions from managing significant financial risks.
This withdrawal marks a continuation of actions by US federal agencies since the Trump administration to shift away from the previous administration’s climate-focused policies. This includes the Fed’s departure from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a global coalition aimed at addressing climate and green finance issues.
Five of the Fed Board’s seven members voted in favour of the withdrawal. Governor Michael Barr, who opposed the decision, argued that revoking the principles contradicts sound risk management practices amid increasing climate-related financial risks. Barr criticised the rescission, citing a lack of evidence to justify the decision so soon after the principles were implemented, and emphasised the need for a rational, evidence-based explanation for such actions.
