Advocacy Groups Call for Additional Safeguards in Federal Reserve Principles on Climate-Related Risk

WASHINGTON, D.C. — The Sierra Club and Public Citizen together with a coalition of 68 financial advocacy, environmental and consumer groups have called on the Federal Reserve Board of Governors to take rapid action to implement new guidelines for financial institutions aimed at safeguarding the economy from the impacts of climate change. The comment period for the draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions closed on February 6. Read the letter here.

“Climate change poses significant risks to the safety and soundness of financial institutions, the financial system, and communities,” the groups write. “The U.S. lags behind much of the world on mitigating climate-related risk. We encourage the FRB to take the lead with its global peers who are actively exploring the need for additional supervisory and regulatory measures to respond to climate risk, including the need for increased attention to capital and liquidity requirements at the largest, most complex institutions.”

The coalition, including the Americans for Financial Reform Education Fund, Greenpeace, and World Wildlife Fund, called for the Fed to improve the guidance it gives to banks by:

• Clarifying what it means in practice for large financial institutions to align their net-zero transition plan commitments with their internal strategies
• Making clear that financial institutions committing to net zero by 2050 must implement credible internal strategies that meet the imperatives of climate science, technological realities, and safety and soundness — including short- and medium-term targets and metrics.
• Adopting a consistent approach to overseeing alignment of climate commitments in line with science-based recommendations including the International Energy Agency’s 2021 roadmap calling for no investment in new fossil fuel supply.

“This new guidance is an important first step, but it’s just that: a first step. The Fed must establish clear expectations for how financial institutions can set credible net-zero transition plans, and exert greater scrutiny on institutions whose financing conflicts with their climate commitments. While the Fed stalls on adequately managing climate risk, Wall Street banks continue to threaten financial stability with reckless fossil fuel investments. As the country’s most important financial regulator, it’s past time for the Fed to show stronger leadership to ensure banks are appropriately managing climate-related risk,” said Adele Shraiman, campaign representative in the Sierra Club’s Fossil-Free Finance campaign. 

“The Federal Reserve’s actions mark an understanding that it has an important role to play in regulating how banks deal with the climate crisis,” said Anne Perrault, finance policy counsel with Public Citizen’s Climate Program. “The Fed needs to quickly strengthen and finalize these Principles, then get to work issuing more detailed guidance and examining bank risk-taking in this area more closely.” 

The Federal Reserve’s draft Principles are similar to proposals issued over the last 14 months by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. When finalized, the agencies’ Principles will mark a first step toward protecting financial institutions from potential dangers caused by climate change.