OCC ends consideration of climate-related financial risks

Andrew Harrer/Bloomberg

The Office of the Comptroller of the Currency is ending its participation in a framework for mitigating climate-related financial risks at large banks. 

The agency said Monday that the principles hampered institutions and their regulators and were duplicative of other regulatory requirements. 

"The OCC's existing guidance for banks to maintain a sound risk management framework applies to all activities conducted by supervised institutions and includes potential exposures to severe weather events or natural disasters," acting Comptroller of the Currency Rodney Hood said. "I will continue to look for appropriate opportunities to calibrate regulatory requirements to be effective, not excessive, while ensuring the safety, soundness and fairness of the federal banking system."

Under the Trump administration, agencies have moved away from considering the risk of climate events to bank's business models — something Hood says falls outside the OCC's primary mission. The OCC said it continues to expect all banks to "have effective risk management processes commensurate with their size, complexity and risk of their activities."

The OCC in February withdrew from an international body devoted to combatting climate-driven financial risks known as the Network of Central Banks and Supervisors for Greening the Financial System. The OCC's exit from the body follows similar moves by the Federal Reserve Board and the Federal Deposit Insurance Corp.

That international organization was formed in 2017 to enhance international climate coordination after President Donald Trump withdrew from the Paris Climate Accord in his first term. The NGFS's stated goal was to uphold the Paris Accord's goals of stemming climate change — including by leveraging finance to stem greenhouse gas emissions — as well as study financial risks stemming from climate change. 

The U.S. bank regulators' move away from supervising climate risks marks the beginning of a predicted shift in the agency's approach toward climate change under Trump. 

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FDIC acting Chair Travis Hill in January argued his agency's mandate is limited to ensuring the safety and soundness of financial institutions and that environmental issues are outside that purview. Outlining his goals for his tenure as agency head last month, Hill explicitly called for the FDIC's withdrawal from the Network for Greening the Financial System and expressed doubt about the relevance of a proposed Basel Committee framework for climate-related financial risk disclosures. Hill also said he expects the FDIC to resist implementing climate-focused disclosure requirements under new leadership.

The Securities and Exchange Commission in March voted to end its defense of rules that require firms to disclose climate-related risks and greenhouse gas emissions. After the rules were adopted in March last year, states and industry groups challenged the rules, leading to a halt on enforcement of the climate disclosure standards at the SEC. 

Environmental activists say banks benefit from factoring in climate effects over the long term, pointing to recent wildfires in greater Los Angeles and other extreme weather events that cause financial losses. 

Despite this, banks and their regulators have interpreted Trump's reelection as a green light to drop the climate initiatives like the Net-Zero Banking Alliance, from which six of the largest banks exited since the election.