Federal Reserve Guidance on Climate Risks to Large Banking

In December, 2022, the Federal Reserve released draft guidance that could push major banks to manage the financial threats of a warming world. The proposed guidance would apply to lenders with more than $100 billion in assets — and, if finalized, would prod those institutions to take steps to assess and manage their exposure to the clean energy transition and physical climate impacts.

Doing so would entail ensuring their boards and executives understand climate-fueled threats as well as infusing climate factors into their business strategies and risk management practices. That could include gauging their own ability to stay afloat amid the global shift away from fossil-based energy via so-called climate scenario analysis.

The central bank said the document is “substantially similar” to high-level climate guidance issued by the Office of the Comptroller of the Currency in December of last year and the Federal Deposit Insurance Corp. in March of this year.