Dive Brief:

• The Federal Deposit Insurance Corp. (FDIC) unveiled draft principles Wednesday that would provide bank leadership with a framework to manage exposure to financial risks associated with climate change.
• The guidance is aimed at financial institutions with more than $100 billion in total consolidated assets, although the FDIC said any size institution may have exposure to climate-related financial risks.   
• The agency will field public comments on the proposed principles for 60 days after the document is published in the Federal Register.

Dive Insight:

"Climate-related financial risks pose a clear and significant risk to the U.S. financial system and, if unmitigated, may pose a near-term threat to safe and sound banking and financial stability," Acting FDIC Director Martin Gruenberg said in a statement. 

The agency’s guidance on climate change comes shortly after Gruenberg, a Democrat, replaced Trump-era Republican appointee Jelena McWilliams at the helm of the regulator.

The FDIC board on Wednesday approved the proposed statement of principles for climate-related credit, liquidity, operational and compliance risk management for large financial institutions. 

The principles seek to provide guidance for the boards of directors and senior management of large financial institutions to create governance frameworks to successfully measure and manage climate-related financial risks. 

The FDIC urges bank management to develop climate-related scenario analysis frameworks to gauge their institutions’ resilience to climate-related physical and transition risks. 

Such frameworks would provide a "forward-looking assessment of the potential impact on an institution of changes in the economy, financial system or the distribution of physical hazards resulting from climate-related risks," the agency said. 

The FDIC is far from the first regulator — nor the first in the banking sphere — to attempt to tackle the risks posed by climate change and the transition to a greener economy. Wednesday's move echoes the climate-risk framework the Office of the Comptroller of the Currency (OCC) laid out in December. 

The Securities and Exchange Commission (SEC) last week proposed that companies include climate-related disclosures — including greenhouse-gas emissions — in registration statements and periodic reports.

"The Federal Reserve is now the only banking regulator that has yet to release guidance related to banks’ climate-related risks," said Todd Philips, director of the Center for American Progress, a liberal think tank. "I encourage [the Fed] to issue similar climate guidance promptly to ensure that all large banks within the United States understand the risks they face from climate change."

The Fed announced in October it was developing scenario analysis to model potential climate change-related financial risks.