On October 24, 2023, the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) issued a joint agency climate-related financial risk management guidance for large institutions. The guidance, which has been awaited for nearly two years, raises numerous questions for corporations and law firms alike.
This process began back in December 2021 when the OCC first published preliminary guidance, with the other agencies following in 2022. The full text of the guidance document is now available for review and interpretation by industry professionals.
The publication rapidly provoked questions concerning the implications for the financial sectors and large institutions in particular. What exactly does this guidance entail? What type of financial risks associated with climate change are they focusing on? What changes should be expected concerning regulatory oversight and corporate disclosures? As legal professionals, these questions are not just relevant for our understanding and business decisions, but are critical to our advising capabilities.
As we continue to delve into the document and its potential implications, preliminary assessments suggest that the guidance reflects an increasing recognition within regulatory structures of the financial risks associated with climate change. The increasing prevalence of environmental, social and governance (ESG) factors in business decisions, corporate disclosures and risk assessments are at the heart of this new guidance.
While the guidance is applicable to large institutions, it is reasonable to expect smaller institutions and entities to utilize it as foundation for best practices concerning climate-related financial risk management. This development indicates a significant shift in the handling of climate-related financial risks and should not be overlooked, even by organizations not directly impacted by the formal guidance.
Over the coming months, as the effects of this guidance begin to unfold, and as corporations and law firms begin to craft responses to comply with the new regulation, further analyses and discussions will be necessary to fully understand the climate-related financialrisk management landscape.