The federal bank regulatory agencies comprising the Federal Reserve Board (FRB), Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) have rescinded interagency guidance geared toward addressing emerging impacts of climate change on financial markets and institutions.
The change is effective immediately pending its publication in the Federal Register and follows the OCC’s unilateral withdrawal from the guidance in March 2025.
Issued jointly by the FRB, FDIC and OCC on Oct. 30, 2023, “Principles for Climate-Related Financial Risk Management for Large Financial Institutions” established a “high-level framework for the safe and sound management of exposures to climate-related financial risks” for financial institutions with more than $100 billion in total consolidated assets.
“The agencies do not believe principles for managing climate-related financial risk are necessary because the agencies’ existing safety and soundness standards require all supervised institutions to have effective risk management commensurate with their size, complexity and activities,” Thursday’s joint announcement from the agencies stated.
The agencies noted in drafting the principles that issuing the guidance was an attempt to “promote consistency in their climate-related financial risk management guidance,” acknowledging that “financial institutions are likely to be affected by both the physical risks and transition risks associated with climate change.”
The agencies noted that risks to communities and financial institutions ranged from acute, climate-related events such as hurricanes and wildfires to environmental shifts like higher average temperatures and sea level rise to stresses on economic sectors impacted by political, industrial and technological shifts.
Now, the agencies assess that concern over emerging climate-related risks “could distract from the management of other potential risks identified and addressed by financial institutions’ existing risk management processes and the agencies’ other risk management rules and guidance,” according to the announcement issued Thursday.
In a rare display of internal dissent among central bank policymakers, several Federal Reserve governors issued individual statements supporting or condemning the decision to rescind the interagency climate risk-related framework.
Vice Chair of Supervision Michelle Bowman described the rescission as “an important step towards better focusing and allocating resources on areas that are most likely to cause material financial risk.”
Governor Michael Barr had a much different take.
“Revoking the principles as climate-related financial risks increase defies logic and sound risk management practices,” Barr fumed. “The rescission contains literally no evidence to support taking this step only two years after putting the principles into effect. We owe the public a rational, evidence-based explanation for our actions, and this rescission fails that test.”
Governor Lisa Cook did not voice approval or disapproval of the rescission but said her position has not changed since 2023: “To the extent severe weather events could cause disruptions to specific firms or to the financial system, I would expect that large banks would seek to be proactive in monitoring, assessing, and appropriately addressing such risks.”
Governor Christopher Waller offered two words: “Good riddance.”
Beyond the federal bank agencies’ stated reasoning, the rescission of the principles was conducted in compliance with Executive Order 12866, “Unleashing Prosperity Through Deregulation,” signed by President Donald Trump on Jan. 31, 2025, per Thursday’s notice.
A separate executive order signed by Trump on Jan. 20, “Unleashing American Energy,” dismantled dozens of climate-focused initiatives dubbed President Joe Biden’s “Green New Deal” for addressing climate change.
It specifically revoked Executive Order 14030, “Climate-Related Financial Risk,” signed on May 20, 2021, directing the “assessing, in a detailed and comprehensive manner, the climate-related financial risk, including both physical and transition risks, to the financial stability of the Federal Government and the stability of the U.S. financial system.”
