NCUA garners feedback on climate risks facing credit unions

Al Drago/Bloomberg

With climate-related natural disasters growing in frequency and severity, credit union regulators are gathering industry feedback on the true toll of these events and best practices for mitigating the risks posed to institutions of all sizes.

The National Credit Union Administration released a request for information on climate-related financial risk in late April, calling for executives and other experts to share insights surrounding how environmental changes have affected the operations of institutions across the U.S. and will continue to do so moving forward. The agency polled respondents on possible strategies for factoring the physical damages of disasters into business plans, making operational shifts such as the development of new products, adjusting supply chains and more. 

Todd Harper, chairman of the NCUA, explained that the frequency of $1 billion disaster events such as tornadoes, floods and wildfires have hit record highs in the last three years and drove board members to seek the perspectives of seasoned credit union professionals experienced with managing the risks and fallout caused by the occurrences.

"Our job is to help them think about all material risks, not to be thinking about the environment here at all. … But how can we do that in a way that helps to keep them healthy and the credit union system vibrant, so that we don't see any future credit unions encounter climate-related financial risks," Harper said.

Research from the National Oceanic and Atmospheric Administration's National Centers for Environmental Information showed that the overall financial damages have similarly increased, with last year's combined disaster cost totaling roughly $171.5 billion — roughly 49% higher than 2020's total of $115.2 billion. Comparable data from the agency's Office of the Chief Economist released in April estimated that minority-depository institutions and low-income-designated credit unions faced a higher risk when compared to the system as a whole.

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"What we're trying to do here is to figure out how we can develop tools, the information [and] the systems that will allow credit unions to better measure, monitor and mitigate their risks overall," Harper said. "Without starting to gather that information, you can't figure out how to develop those tools, [as well as] what tools are wanted or needed."

In the wake of notable disasters such as Hurricane Ida and Hurricane Fiona, credit union leaders worked quickly to help displaced members — and often people who weren't members — by providing services ranging from emergency lines of credit to hot meals and other basic necessities.

Environmentally-mindful shareholders with Bank of America, Citigroup and Wells Fargo have continued their push for more climate-conscious policies within the institutions, but have seen support dwindle over the years as board members insist current policies are currently productive in combating carbon emissions and achieving net zero emissions by 2050.

Experts with the Credit Union National Association and the National Association of Federally-Insured Credit Unions are concerned that the NCUA's information request might be the starting point for burdensome new regulatory requirements.

Jason Stverak, deputy chief advocacy officer for federal government affairs for CUNA, stressed that credit unions executives are inherently well informed about the communities they live in, and he said that trusting leaders on the ground to make the best judgment is the best path forward. 

"They're not 1,000 miles away making a decision. … They're your neighbor, two houses down [and] they don't need someone from a nameless, faceless bureaucracy in Washington, D.C., to tell them what is in the best interest of the community that they live in right now," Stverak said.

Greg Mesack, senior vice president of government affairs for NAFCU, underscored the importance of collaboration between C-suite members for sharing best practices on proper climate-related risk management as an effective solution for widespread vulnerabilities. 

"There is a role that the NCUA can occupy and provide leadership, not necessarily regulations or mandates, but leadership and guidance," in the place of more formalized regulations, Mesack said.

The deadline for comments is June 26. No comments received by the NCUA have been made public on the government portal prior to American Banker's deadline.

"This is not your father's credit union system, [and] this is certainly not your grandfather's credit union system. … We want to make sure that credit unions have a level playing field when it comes to working through issues and thinking about issues, while also making sure that they're grasping what the risks out there are," Harper said.