November 8, 2021, Acting Comptroller of the Currency, Michael J. Hsu, highlighted the need to “move the climate conversation from the offices of scientists, policymakers, and regulators to bank boardrooms.” https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-116.html
On March 22nd, 2022, the SEC proposed rules to enhance and standardize Climate-Related Disclosures for Investors. SEC.gov | SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors
When and how should your institution get started? Below are observations from Comptroller Hsu that will help begin your internal discussions.
Hsu drew attention to five climate change-related questions that bank boards of directors should ask their senior management. Initially, large banks (typically $50 billion+ in assets) will be required to comply with the new regulations. However, smaller institutions are advised not to sit back and wait. Take this time to begin preparations.
| Hsu’s main points | What can be down now? |
| What is our overall exposure to climate change?
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Identify scenarios, data needs and a framework. While the US regulators have not released details, they will look to UK and EU precedents. |
| Which counterparties, sectors, or locales warrant heightened attention and focus? | Think about how best to develop your framework and scenarios at a sector, subsector, borrower, and geographic level. Design your framework with borrower level analysis in mind |
| How exposed is my institution to a carbon tax? | Identify the sectors most impacted by carbon tax. Using the above framework, apply sector impacts to individual borrowers. This will allow the institution to quantify the carbon tax impact by sector and individual borrower. |
| How vulnerable are my data centers and other critical services to extreme weather? | Identify operational risk: banks need to develop and document their existing operations, the entities performing such operations, the locations where these operations take place, any back-up sites, and/or cross-sector dependencies. Don’t forget about third-party vendors that provide or support critical services. |
| What can my institution do to position ourselves to seize opportunities from climate change? | An institution that demonstrates early leadership and adoption regarding climate change risk will better serve its customers in the transition to greener operations. Don’t wait for the regulations to be published. These efforts, will benefit both the bank’s bottom line and its reputation. |
Fortrex Technologies is here to help your institution get the Climate Change Risk program launched. Please contact us to get started today.
Please let us know if you have questions and how we can help you continue to have an effective and efficient third party risk management program. Fortrex is here to assist.
