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On October 7, Federal Reserve Governor Lael Brainard spoke at the Federal Reserve Stress Testing Research Conference discussing the impacts of climate change on economic activity. Brainard revealed that the Fed is considering the potential implications of climate-related risks for financial institutions and the financial system and emphasized that scenario analysis is emerging as a possible key analytical tool. Regarding the climate scenario analysis, Brainard noted that climate change’s future financial and economic consequences depends on the physical effects and the nature and speed of the transition to a sustainable economy. She highlighted the importance of “model[ing] the transition risks arising from changes in policies, technology, and consumer and investor behavior and the physical risks of damages caused by an increase in the frequency and severity of climate-related events as well as chronic changes, such as rising temperatures and sea levels.” Brainard also discussed opportunities to learn from other countries' use of climate scenario analysis and overcoming the challenges in implementing climate scenario analysis, noting that “climate scenario analysis may need to consider interdependencies across the financial system,” among other things. Brainard added that she anticipates that it will be useful “to provide supervisory guidance for large banking institutions in their efforts to appropriately measure, monitor, and manage material climate-related risks, following the lead of a number of other countries.”
The same day, the U.S. Treasury Department announced the Treasury Climate Action Plan, which is directed by Executive Order 14008 and Treasury’s efforts to support adaptation and increase resilience of its facilities and operations to the impacts of climate change. Among other things, the plan establishes five priority action areas, including: (i) rebuilding stagnated programs and capabilities; (ii) addressing climate change vulnerabilities across Treasury operations; (iii) ensuring a climate-focused approach to managing Treasury’s real property portfolio footprint; (iv) enabling management to fully consider climate change realities; and (v) accounting for a financial investment approach appropriate to Treasury’s climate objectives. In addition to the priority areas, Treasury will utilize the data and science of climate change to adjust policies, programs, and activities in improving its resilience to climate risks and impacts, according to the announcement.
Recently, the SEC’s Division of Corporation Finance issued guidance to companies that may be required to include information concerning climate change risks and opportunities in “disclosures related to a company’s description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations.” Such disclosures, as discussed in the SEC’s 2010 Climate Change Guidance, address the following: (i) the effect of pending or existing legislation, regulations, and international agreements related to climate change; (ii) the indirect impact of regulations or the direction of business trends; and (iii) the physical effects of climate change. An illustrative letter provided by the Division outlines “sample comments that the Division may issue to companies regarding their climate-related disclosure or the absence of such disclosure.” The Division clarified that the letter does not provide an exhaustive list of issues that companies should consider, and that any comments issued “would be appropriately tailored to the specific company and industry, and would take into consideration the disclosure that a company has provided in Commission filings.”
On July 27, the OCC appointed Darrin Benhart as its Climate Change Risk Officer and announced its membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). OCC’s membership in NGFS will allow the agency to collaborate with central banks and peer supervisors, share best practices, and contribute to the development of climate risk management in the financial sector. The appointment of Benhart to the newly created position “will significantly expand the agency’s capacity to collaborate with stakeholders and to promote improvements in climate change risk management at banks,” acting Comptroller Michael J. Hsu stated, adding that Benhart “brings a wealth of supervisory, policy, and leadership experience to the role.” Hsu emphasized that “[p]rudently managing climate change risk is a safety and a soundness issue,” noting that these changes “will enable the agency to be more proactive in accelerating the development and adoption of robust climate change risk management practices, especially at the larger banks.”
On June 14, NYDFS and a coalition of 12 state attorneys general led by the California attorney general submitted separate letters (see here and here) in response to a request for input by Acting SEC Chair Allison Herren Lee, providing recommendations on disclosing information on climate change risks that entities are facing. Among other things, NYDFS recommends that the SEC: (i) make disclosures reliable, balanced, understandable, consistent over time, comparable among institutions within a sector, and provided in a timely manner; (ii) provide disclosure of the corporate governance and board oversight relating to climate-related issues and risks, such as policies, procedures, internal controls, and management information systems; (iii) disclose how an institution identifies, assesses, monitors, and manages climate-related risks and how such risks are integrated; and (iv) encourage agencies to take an equitable approach “that reflects each institution’s exposure to climate risks and the nature, scale, size, and complexity of its business.” NYDFS notes that “[d]eveloping and managing standards related to the disclosure of risks related to climate change requires collaboration among state and federal regulators and the industries that they regulate.”
The AGs advise the SEC to require that private and public companies analyze climate change-related risks altering their businesses and disclose that information, asserting that the current disclosure requirements under the SEC are insufficient. The letter includes recommendations, such as requiring SEC-regulated firms to (i) make annual disclosures of their greenhouse gas emissions and any plans to address their emissions; (ii) evaluate and disclose the potential impacts of climate change and climate change regulation; and (iii) disclose corporate governance and risk management practices as they relate to climate change.
On May 20, President Biden ordered financial regulators to take steps to mitigate climate-related risk related to the financial system. The executive order, among other things, directs the Secretary of the Treasury to work with Financial Stability Oversight Council (FSOC) members to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk . . . to the financial stability of the federal government and the stability of the U.S. financial system,” and to facilitate climate-related risk information sharing between FSOC member agencies and other federal departments and agencies. Under the executive order, Treasury is also required to issue a report to the president within 180 days on current efforts taken by FSOC members to incorporate climate-related financial risk into their policies and programs. The executive order directs the report to include recommendations on (i) “actions to enhance climate-related disclosures by regulated entities to mitigate climate-related financial risk”; (ii) current approaches for incorporating climate-related financial risk considerations into regulatory and supervisory activities, as well as a discussion of any impediments faced when adopting these approaches; (iii) processes for identifying climate-related financial risks; and (iv) how “identified climate-related financial risks can be mitigated, including through new or revised regulatory standards as appropriate.” The executive order also states, among other things, that federal financial management and reporting should be modernized to incorporate climate-related financial risk, especially risk related to federal lending programs.
- Daniel R. Alonso to discuss internal investigations at the Institute of Internal Auditors of Argentina Spanish-language webinar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Marshall T. Bell and John R. Coleman to speak at 2021 AFSA Annual Meeting
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek