On January 18, 2022, the Office of the Comptroller of the
Currency (“OCC”) announced the renewal of a survey on
climate risk management practices at larger OCC-regulated banks
(“Climate Survey”).1 This
announcement may have come as a surprise for those who were not
aware of the existence of the Climate Survey as the survey is one
of the lesser discussed parts of the agency’s initiative to
address the effects of climate change.
The due date for the first iteration of the Climate Survey was
December 6, 2021, and banks were not required to respond to the
Climate Survey unless contacted by the OCC. Based on the January 18
extension, the OCC may be continuing to collect information related
to the Climate Survey or may have extended the information
collection authorization for other reasons. Regardless, banks
should consider reviewing the Climate Survey to better understand
the path that the agency expects them to follow when developing
climate risk management practices.
In this Legal Update, we provide background on the OCC’s
climate risk management initiative and discuss the Climate
Survey.
Background
As we explained in a previous Legal Update, over the past three
decades, US financial regulators have adopted a series of
operational and governance standards for insured depository
institutions, including specialized standards for safety and
soundness at larger federally chartered banks,2 which the OCC is seeking to update to
include climate change risks.
In November 2021, the acting head of the OCC issued a call to
action on climate change to the boards of directors of
OCC-regulated banks.3 Specifically,
he outlined an initial series of climate change-related questions
that boards should be asking bank management and stated that bank
boards should use the exercise to help improve and build up climate
risk management and reporting capabilities. He also indicated that
the OCC would conduct a “range-of-practices review” as
part of developing supervisory expectations for climate risk
management. The Climate Survey discussed here is that review.
Climate Survey
The Climate Survey is a series of 17 questions, most of which
include multiple choice responses and all of which request
follow-up comments and supplementary documents (e.g., org charts,
climate risk management policies, climate risk appetite
statements/frameworks, climate risk plans). Please see the appendix
to this Legal Update for a list of the questions in the Climate
Survey.
The preamble to the Climate Survey indicates that it was sent to
banks through the OCC’s BankNet system. The recipients are not
identified, but other filings made by the OCC indicate that
approximately 20 larger OCC-regulated banks received the survey.
While banks were not required to draft new materials to submit with
their responses, the OCC estimated that it would take each bank 170
hours to draft those responses.
The multiple choice answers to questions 1, 2, 3, 4, 5, 6, 7,
10, and 12 are framed as a continuum that allows banks to indicate
whether they are in the early stages of developing climate risk
management practices or have efforts that are more developed (they
also include a catch-all answer of “other”). For example,
question 10 addresses climate scenario analysis and asks whether
the bank has developed, is working on, has plans to work on or has
no plans to work on climate scenario analysis.
Question 11 is notable in that it implies banks should be
considering adopting voluntary frameworks for disclosing
climate-related information. It lists the following as some of the
frameworks that banks may choose to adopt and asks for examples of
disclosures that banks have created.
- TCFD – the Financial Stability Board’s Task Force on
Climate-Related Financial Disclosures - SASB – the Sustainability Accounting Standards Board
- GRI – the Global Reporting Initiative
- PCAF – the Partnership for Carbon Accounting Financials
- GHG Protocol – the Greenhouse Gas Protocol
- CDP – the Carbon Disclosure Project
Question 12 is notable in that it implies banks should
eventually consider climate risks in credit decisions and when
pricing financial products. While the regulators have gone to
lengths to emphasize that they will not use climate risk management
to restrict banks from lending to specific industries, there remain
concerns that this will be the consequence of incorporating climate
risk as an explicit factor in credit decisions.4 Further, it is not clear whether
requiring banks to incorporate climate risks into credit
underwriting will drive certain borrowers to nonbank lenders, as
has happened with the supervisory prohibition against banks making
LIBOR-based loans.5 It also stands
in contrast to Question 16, which asks banks for the strategy that
they are using to mitigate the impact of climate risk management
activities on consumers’ and vulnerable communities’ access
to financial services.
Takeaways
Assuming that most banks requested confidential treatment for
their responses, it is unlikely that the OCC will publicly release
the responses to the Climate Survey. However, we expect that the
OCC is carefully considering the responses as it develops a risk
management framework for climate-related financial risks. And we
expect to see the results in the form of supervisory guidance that
will be issued throughout 2022.
We do not know if the OCC plans to request updated responses to
the Climate Survey, but if it does, we expect it to look for banks
to have made progress in developing climate risk management
capabilities. For example, if a bank initially responded that it
was developing climate risk metrics, the OCC might look to it to
provide samples of the climate risk reports in response to future
surveys. Also, while the results will not be used to assess the
adequacy of bank climate risk management practices, examiners might
use the results of the Climate Survey to guide and focus their own
assessments of bank practices.
Banks should consider reviewing the Climate Survey even if they
were not required to complete it as it provides useful insights
into regulatory expectations on climate risk management. Among
other points, it outlines the stages the OCC apparently expects
banks to progress through as they develop climate risk management
practices. Further, it identifies the key items that the OCC
expects to see as part of those risk management practices (e.g.,
training, scenario analysis). These are useful markers for banks to
understand as they rapidly build out risk management capabilities
in this area.
To discuss any of the issues raised in this Legal Update, please
reach out to any of the authors listed above or your Mayer Brown
contact.
Appendix: Questions
- What is the current maturity of the bank’s climate risk
management framework and program? - What best describes the bank’s current governance structure
that is responsible for management of climate-related financial
risks at the bank? - What best describes the bank’s plans for a governance
structure, in the next 1-3 years, that addresses climate-related
financial risks at the bank? - Does the bank’s second line of defense currently have
processes to oversee climate-related financial risks? - How would you characterize the work to date by internal audit
on climate risk management? - Has the bank developed risk appetite statements or risk
appetite metrics? - Are data and risk measurement metrics to estimate the
bank’s exposure to climate-related financial risks provided to
senior management and the Board? - Who has received training within the bank on climate risk
management? - Please describe any climate-related commitments the bank has
made (e.g., net-zero emissions) and associated dates below and
upload any related documentation to BankNet. - How is the bank currently using scenario analysis to measure
climate-related financial risks? - There are a number of voluntary climate-related reporting
frameworks. Please identify and provide recent examples of the
disclosure framework used for the banks own reporting. - Does the bank currently include climate-related financial risks
and analysis in credit decisions and the pricing of financial
products? - Does the bank have plans to offer new financial products or
services related to sustainable finance or climate change over the
next 12 months? - What are the short-term (1-2 years) challenges for the bank in
identifying, measuring, and managing climate-related financial
risks? - What are the long-term challenges (2-5 years) for the bank in
identifying, measuring, and managing climate-related financial
risks? - Please describe any challenges that OCC-supervised institutions
face as they seek to manage climate-related financial risks while
also meeting the credit and financial services needs of consumers
and communities? - Briefly discuss any other challenges with respect to the
development and execution of a climate risk management framework
that are within the OCC’s purview to address. Please upload any
related documentation to BankNet.
Footnotes
1. 87 Fed. Reg. 2667 (Jan. 18, 2022), https://www.federalregister.gov/public-inspection/2022-00843/agency-information-collection-activities-proposals-submissions-and-approvals-climate-risk-range-of.
The OCC regulates national banks, federal savings associations, and
federal branches and agencies of foreign banking
organizations.
2. 12 C.F.R. pt. 30, app. D.
3. OCC, NR 2021-116 (Nov. 8, 2021).
4. E.g., Brainard: Fed Will Not Tell Banks to
Restrict Lending to Oil and Gas Firms, ABA Banking Journal
(Jan. 13, 2022).
5. E.g., Lara Wieczezynski, Libor Is Staying
Alive for Some New U.S. Leveraged Loan Deals, Bloomberg Law
(Jan. 10, 2022).
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