Climate Risk: FRB principles for climate-related financial risk management

December 2022

The FRB’s proposed principles demonstrate regulatory synergy of heightened regulatory expectations to climate risk management for both physical and transition risks. This action is in keeping with prior issuances by the OCC and the FDIC (see Regulatory Alert, here) and the voluntary TCFD framework. Notably, the FRB’s release helps drive toward the development of interagency climate risk guidance. The current principles cover six areas for which demonstrated program maturation will be expected: 1) governance, 2) policies, procedures and limits, 3) strategic planning, 4) risk management, 5) data, risk measurement, and reporting and 6) scenario analysis. While directed at institutions over $100 billion in total assets, all bank holding companies should be prepared to quickly advance their climate and sustainability data, controls, measurement, analysis, and overall risk and compliance management programs going into 2023.