| Of Interest

What Happened?

On October 16, 2025, the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board (“FRB”), and the Office of the Comptroller of the Currency (“OCC”) (collectively, the “bank regulators”) announced that they intend to rescind the interagency Principles for Climate-Related Financial Risk Management for Large Financial Institutions (“Climate Principles”).

Why Does it Matter?

The Climate Principles, initially issued in 2023, require large financial institutions with consolidated assets over $100 billion to consider climate-related financial risk management in line with regulator risk expectations (including for governance, compliance management, strategic planning, and risk management). The banking regulators’ move to rescind the Climate Principles follows the OCC’s withdrawal from them on March 31.

This recission signals the bank regulators’ shifting view of how climate change considerations should impact individual bank policy, which is consistent with President Trump’s rescission of the Biden Administration’s executive order on climate-related financial risk. The FRB staff noted in a memo to the Federal Reserve Board of Governors that they believe the Climate Principles “are not necessary and may be distracting large financial institutions from the management of material financial risks.” (Previously, FRB Vice Chair for Supervision Michelle W. Bowman argued in 2023, when the Climate Principles were initially issued, that they “increased compliance cost and burden without a commensurate improvement to the safety and soundness of financial institutions.” She also expressed concerns that examiners would be pressured to apply the Climate Principles’ expectations on smaller banks.)

What Do You Need to Do?

Guidance from the bank regulators emphasize that banks must continue to assess all material risks and should be resilient to a range of risks. This does not completely rule out that a bank may need to prepare for climate-related risks, but it removes the spotlight from these risks if they are not deemed “material,” such as those that are present, in the words of FRB Vice Chair Bowman, over an “indefinite time horizon.” The rescission of the Climate Principles will take effect immediately upon publication of a formal notice in the Federal Register (currently pending); the bank regulators issued a draft notice in advance of that publication.

The banking regulators’ withdrawal of the Climate Principles does not impact parallel state action to address risks associates with climate change. Shortly after the Climate Principles were issued in 2023, the New York Department of Financial Services issued its own guidance for financial institutions regarding climate change risks. This guidance remains in effect for all New York state regulated mortgage lenders and servicers, banking organizations, licensed branches, and agencies of foreign banking organizations. Thus, even when the Climate Principles are rescinded, regulated financial institutions may have cause to remain attuned to related risks.

What Happened?

On December 21, 2023, the New York Department of Financial Services (“NYDFS”) published an 18-page guidance document (the “Guidance”) on managing material, financial and operational risks due to climate change. The NYDFS issued the Guidance after considering feedback it received on proposed guidance it issued in December 2022 on the same topic. The Guidance applies to New York State regulated mortgage lenders and servicers, as well as New York State regulated banking organizations, licensed branches and agencies of foreign banking organizations (collectively, “Regulated Organizations”).

Why Is It Important?

The NYDFS has set forth its expectations, replete with examples, for Regulated Organizations to strategically manage climate change-related financial and operational risks and identify necessary actions proportionate to their size, business activities and risk profile. Such expectations include:

Corporate Governance: An organization’s board of directors should establish a risk management framework, including its overall business strategy and risk appetite, which include climate related financial and operational risks, and holding management accountable for implementation. Such framework should be integrated within an organization’s three lines of defense – quality assurance, quality control and internal audit. Recognizing that low and moderate income (“LMI”) communities may be adversely impacted from climate change, the NYDFS expects an organization’s board of directors to direct management to “minimize and affirmatively mitigate disproportionate impacts” which could violate fair lending and other consumer finance laws. On that note, the NYDFS reminds organizations to consider opportunities to mitigate financial risk through financing or investment opportunities which enhance climate resiliency and are eligible for credit under the New York Community Reinvestment Act.
Internal Control and Risk Management: Regulated Organizations should also consider and incorporate climate related financial risks when identifying and mitigating all types of risks, including credit, liability, market, legal/compliance risk, and operational and strategic risk. The NYDFS defines financial risks from climate change to include physical risks from more intense weather events as well as transition risks, resulting from “economic and behavior changes driven by policy and regulation, new technology, consumer and investor preferences and changing liability risks.” The NYDFS recognizes that insurance is an important mitigant to climate change risk but cautions that the availability of such insurance in the future is not guaranteed.
Data Aggregation and Reporting: Regulated Organizations should establish systems to aggregate data and internally report its efforts to monitor climate related financial risk to facilitate board and senior management decision making. Such organizations also should consider developing and implementing climate scenario analyses.

What Do You Need to Do?

The NYDFS stresses that organizations should not let “uncertainty and data gaps justify inaction.” Although the NYDFS has not issued a timeline for implementation of the Guidance or begun incorporating such expectations into examinations (which will be coordinated with the prudential regulators to align with joint supervisory processes), now is the time to begin integrating climate-related financial and operational risks into your company’s organizational structure, business strategies and risk management operations. This will help you prepare for when your organization is required to respond to the request for information which the NYDFS anticipates sending out later this year. It is anticipated that the NYDFS will ask for information on the steps your organization has taken or will take within a specified period to manage financial and operational climate-related risks, including government structure, business strategy, risk management, operational resiliency measures, and metrics to measure risks.