Board of Governors of the Federal Reserve System

Federal Deposit Insurance Corporation

Office of the Comptroller of the Currency

October 24,2023

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Principles for Climate-Related Financial Risk Management for Large Financial Institutions

The financial impacts that result from the economic effects of climate change and the

transition to a lower carbon economy pose an emerging risk to the safety and soundness of financial

institutions [Footnote 1

- In this issuance, the term “financial institution” or “institution” includes national banks, Federal savings associations,

U.S. branches and agencies of foreign banks, state nonmember banks, state savings associations,state member banks,

bank holding companies,savings and loan holding companies, intermediate holding companies, foreign banking 

organizations with respect to their U.S. operations, and non-bank systemically important financial institutions (SIFIs)

supervised by the Board. End of Footnote 1.]

and the financial stability of the United States. Financial institutions are likely to be

affected by both the physical risks and transition risks associated with climate change (collectively,

climate-related financial risks). Physical risks refer to the harm to people and property arising from

acute, climate-related events, such as hurricanes, wildfires, floods, and heatwaves, and chronic shifts

in climate, including higher average temperatures, changes in precipitation patterns, sea level rise,

and ocean acidification. [Footnote 2

- The Financial Stability Oversight Council has described the impacts of physical risks as follows: “The intensity and

frequency of extreme weather and climate-related disaster events are increasing and already imposing substantial 

economic costs. Such costs to the economy are expected to increase further as the cumulative impacts of past and 

ongoing global emissions continue to drive rising global temperatures and related climate changes, leading to increased

climate-related risks to the financial system.” Report on Climate-Related Financial Risk, Financial Stability Oversight

Council, page 10 (Oct. 21, 2021) (FSOC Climate Report), available at https://home.treasury. gov/system/files/261/FSOCClimate-Report.pdl. End of Footnote 2.]

Transition risks refer to stresses to institutions or sectors arising from the

shifts in policy, consumer and business sentiment, or technologies associated with the changes that

would be part of a transition to a lower carbon economy. [Footnote 3

- The Financial Stability Oversight Council has described the impacts oftransition risks as: [Changing] public

policy, adoption of new technologies, and shifting consumer and investor preferences have the potential to impact the

allocation of capital....Ifthese changes occur in a disorderly way owing to substantial delays in action or abrupt changes

in policy, their impact on firms, market participants, individuals, and communities is likely to be more sudden and

disruptive.” FSOC Climate Report, page 13. End of Footnote 3.]

Physical and transition risks associated with climate change could affect households,

communities, businesses, and governments - damaging property, impeding business activity,

affecting income, and altering the value of assets and liabilities. These risks may be propagated

throughout the economy and financial system. As a result, the financial sector may experience credit

and market risks associated with loss of income, defaults, and changes in the values of assets,

liquidity risks associated with changing demand for liquidity, operational risks associated with

disruptions to infrastructure or other channels, or legal risks. [Footnote 4

- FSOC Climate Report, page 13. End of Footnote 4.]
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Weaknesses in how a financial institution identifies, measures, monitors, and controls the 

physical and transition risks associated with a changing climate could adversely affect a financial

institution's safety and soundness. The adverse effects of climate change could also include a

potentially disproportionate impact on the financially vulnerable, including low-and-moderateincome (LMI) and other underserved consumers and communities. [Footnote 5

- For further information,see Staff Reports, Federal Reserve Bank of New York, Understanding the Linkages between

Climate Change and Inequality in the United States, No. 991 (Nov. 2021), available at

https://www.newyorkfed.org/research/staff_reports/sr991.html. End of Footnote 5.]

These principles provide a high-level framework for the safe and sound management of

exposures to climate-related financial risks, consistent with the risk management frameworks

described in the agencies' existing rules and guidance.

The principles are intended to support efforts by financial institutions to focus on key aspects

of climate-related financial risk management. The principles are designed to help financial 

institutions' boards of directors (boards) and management make progress toward incorporating

climate-related financial risks into risk management frameworksin a manner consistent with safe 

and sound practices. The principles are intended to explain and supplement existing risk

management standards and guidance on the role of boards and management. [Footnote 6

- References to the board and management throughout these principlesshould be understood in accordance with their

respective roles and responsibilities and is not intended to conflict with existing guidance regarding the roles of board

and management or advocate for a specific board structure. See, e.g., SR 21 -3/CA 21-1: Supervisory Guidance on Board

ofDirectors' Effectiveness (Feb. 26, 2021), https://www.federalreserve. gov/supervisionreg/srletters/SR2103.htm; OCC

Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings

Associations, and Insured Federal Branches, 12 CFR part 30, appendix D. End of Footnote 6.]

Although all financial institutions, regardless of size, may have material exposures to

climate-related financial risks, these principles are intended for the largest financial institutions,

those with over $100 billion in total consolidated assets. [Footnote 7

- The principles are intended for financial institutions with over $100 billion in total consolidated assets. With respect to

foreign banking organizations, this includes organizations with combined United States operations of greater than $100

billion. The principles also are intended for any branch or agency of a foreign banking organization that individually has

total assets of greater than $100 billion. End of Footnote 7.]

Effective risk management practices

should be appropriate to the size of the financial institution and the nature, scope, and risk of its

activities. In keeping with the agencies' risk-based approach to supervision, the agencies anticipate

that differencesin large financial institutions' complexity of operations and business models will

result in different approaches to addressing climate-related financial risks. Some large financial

institutions are already developing governance structures, processes, and analytical methodologies to

identify, measure, monitor, and control for these risks. The agencies understand that expertise in

climate risk and the incorporation of climate-related financial risks into risk management

frameworks remain under development in many large financial institutions and will continue to

evolve over time. The agencies also recognize that the incorporation of material climate-related

financial risks into various planning processes will be iterative, as measurement methodologies,

models, and data for analyzing these risks continue to mature. The agencies encourage large

financial institutions to take a risk-based approach in assessing the climate-related financial risks
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associated with individual customer relationships and to take into account the financial institution's

ability to manage the risk. The principles neither prohibit nor discourage financial institutionsfrom

providing banking services to customers of any specific class or type, as permitted by law or

regulation. The decision regarding whether to make a loan or to open, close, or maintain an account 

rests with the financial institution, so long as the financial institution complies with applicable laws

and regulations.

The principles are intended to promote a consistent understanding of the effective

management of climate-related financial risks. The agencies may consider providing additional

resources or guidance, as appropriate, to support financial institutions in prudently managing these

risks while continuing to meet the financial services needs of their communities.

General Principles

Governance. An effective risk management framework is essential to a financial institution's

safe and sound operation. A financial institution's board should understand the effects of climaterelated financial risks on the financial institution in order to oversee management's implementation

of the institution's business strategy, risk management, and risk appetite. The board should oversee

the financial institution's risk-taking activities, hold management accountable for adhering to the 

risk management framework, and allocate appropriate resources to support climate-related financial

risk management. The board should direct management to provide timely, accurate, and wellorganized information to permit the board to oversee the measurement and management of climaterelated financial risks to the financial institution. The board should acquire sufficient information to

understand the implications of climate-related financial risks across various scenarios and planning

horizons, which may include those that extend beyond the financial institution's typical strategic

planning horizon. If weaknesses or gaps in climate-related financial risk management are identified,

the information provided is incomplete, or as otherwise warranted, the board should challenge 

management's assessments and recommendations. The board and management should support the

stature and independence of the financial institution'srisk management and internal audit functions

and, in their respective roles, assign accountability for climate-related financial risks within existing

organizational structures or establish new structures for climate-related financial risks.

Management is responsible for implementing the financial institution's policies in

accordance with the board's strategic direction and for executing the financial institution's overall

strategic plan and risk management framework. This responsibility includes assuring that there is

sufficient expertise to execute the strategic plan and effectively managing all risks, including

climate-related financial risks. This also includes management's responsibility to oversee the

development and implementation of processes to identify, measure, monitor, and control climaterelated financial risks within the financial institution's existing risk management framework.

Management should also hold staff accountable for controlling risks within established lines of

authority and responsibility. Management is responsible for regularly reporting to the board on the

level and nature of risks to the financial institution, including material climate-related financial

risks. Management should provide the board with sufficient information for the board to understand

the impacts of material climate-related financial risks to the financial institution's risk profile and

make sound, well-informed decisions. Where dedicated climate risk organizational structures are
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established by the board, management should clearly define these units' responsibilities and

interaction with existing governance structures.

Policies, Procedures, and Limits. Management should incorporate material climate-related

financial risks into policies, procedures, and limits to provide detailed guidance on the financial

institution's approach to these risks in line with the strategy and risk appetite set by the board.

Policies, procedures, and limits should be modified when necessary to reflect (i) the distinctive

characteristics of climate-related financial risks, such as the potentially longer time horizon and

forward-looking nature of the risks, and (ii) changes to the financial institution's operating

environment or activities.

Strategic Planning. The board should consider material climate-related financial risk

exposures when setting and monitoring the financial institution's overall business strategy, risk

appetite, and when overseeing management's implementation of capital plans. As part of forwardlooking strategic planning, the board should consider and management should address the potential

impact of material climate-related financial risk exposures on the financial institution's financial

condition, operations (including geographic locations), and business objectives over various time

horizons. The board should encourage management to consider climate-related financial risk

impacts on the financial institution's other operational and legal risks. Additionally, the board

should encourage management to consider the impact that the financial institution's strategies to

mitigate climate-related financial risks could have on LMI and other underserved communities and 

their access to financial products and services, consistent with the financial institution's obligations

under applicable consumer protection laws.

Any climate-related strategies and commitments should align with and support the financial 

institution's broader strategy, risk appetite, and risk management framework. In addition, where

financial institutions engage in public communication of their climate-related strategies, boards and 

management should assure that any public statements about their institutions' climate-related

strategies and commitments are consistent with their internal strategies, risk appetite statements, and

risk management frameworks.

Risk Management. Climate-related financial risks can impact financial institutions through a

range of traditional risk types. Management should oversee the development and implementation of

processes to identify, measure, monitor, and control exposures to climate-related financial risks

within the financial institution's existing risk management framework. Financial institutions with

sound risk management employ a comprehensive process to identify emerging and material risks 

related to the financial institution's business activities. The risk identification process should include

input from stakeholders across the organization with relevant expertise (e.g., business units,

independent risk management, internal audit, and legal). Risk identification includes assessment of

climate-related financial risks across a range of plausible scenarios and under various time horizons.

As part of sound risk management, management should develop processes to measure and

monitor material climate-related financial risks and to communicate and report the materiality of

those risks to internal stakeholders. Material climate-related financial risk exposures should be

clearly defined, aligned with the financial institution's risk appetite, and supported by appropriate

metrics (e.g., risk limits and key risk indicators) and escalation processes. Management should
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incorporate material climate-related financial risks into the financial institution's risk management

system, including internal controls and internal audit.

Tools and approaches for measuring and monitoring exposures to climate-related financial 

risks include, among others, exposure analysis, heat maps, climate risk dashboards, and scenario

analysis. These tools can be leveraged to assess a financial institution's exposure to both physical 

and transition risks in both the shorter and longer term. Outputs should inform the risk identification

process and the short- and long-term financial risks to a financial institution's business model from

climate change.

Data, Risk Measurement, and Reporting. Sound climate-related financial risk management

depends on the availability of timely, accurate, consistent, complete, and relevant data. Management

should incorporate climate-related financial risk information into the financial institution's internal

reporting, monitoring, and escalation processes to facilitate timely and sound decision-making across

the financial institution. Effective risk data aggregation and reporting capabilities allow

management to capture and report climate-related financial risk exposures, segmented or stratified

by physical and transition risks, based upon the complexity and types of exposures. Available data,

risk measurement tools, modeling methodologies, and reporting practices continue to evolve at a

rapid pace; management should monitor these developments and incorporate them into the

institution's climate-related financial risk management as warranted.

Scenario Analysis. Climate-related scenario analysis is emerging as an important approach

for identifying, measuring, and managing climate-related financial risks. For the purposes of these

principles, climate-related scenario analysis refers to exercises used to conduct a forward-looking

assessment of the potential impact on a financial institution of changes in the economy, changes in

the financial system, or the distribution of physical hazards resulting from climate-related financial 

risks. These exercises differ from traditional stress testing exercises that typically assess the

potential impacts of transitory shocks to near-term economic and financial conditions. An effective

climate-related scenario analysis framework provides a comprehensive and forward-looking

perspective that financial institutions can apply alongside existing risk management practices to

evaluate the resiliency of a financial institution's strategy and risk management to the structural

changes arising from climate-related financial risks.

Management should develop and implement climate-related scenario analysis frameworks in

a manner commensurate to the financial institution's size, complexity, business activity, and risk

profile. These frameworks should include clearly defined objectives that reflect the financial 

institution's overall climate-related financial risk management strategies. These objectives could

include, for example, exploring the impacts of climate-related financial risks on the financial 

institution's strategy and business model, identifying and measuring vulnerability to relevant

climate-related financial risk factors including physical and transition risks, and estimating climaterelated exposures and potential losses across a range of scenarios, including extreme but plausible

scenarios. A climate-related scenario analysis framework can also assist management in identifying

data and methodological limitations and uncertainty in climate-related financial risk management

and informing management's assessment of the adequacy of the institution's climate-related

financial risk management framework.
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Climate-related scenario analyses should be subject to management oversight, validation, and 

quality control standards that would be commensurate to the financial institution's risk. Climaterelated scenario analysis results should be clearly and regularly communicated to the board and all

relevant individuals within the financial institution, including an appropriate level of information

necessary to effectively convey the assumptions, limitations, and uncertainty of results.

Management of Risk Areas

A risk assessment process is part of a sound risk management framework, and it allows 

management to identify emerging risks and to develop and implement appropriate strategies to

mitigate those material risks. Management should consider and incorporate climate-related financial 

risks when identifying and mitigating all types of risk. These risk assessment principles describe

how climate-related financial risks can be addressed in various risk categories.

Credit Risk. Management should consider climate-related financial risks as part of the

underwriting and ongoing monitoring of portfolios. Effective credit risk management practices

could include monitoring climate-related credit risks through sectoral, geographic, and single-name

concentration analyses, including credit risk concentrations stemming from physical and transition

risks. As part of concentration risk analysis, management should assess potential changes in

correlations across exposures or asset classes. Consistent with the financial institution'srisk appetite

statement, management should determine credit risk tolerances and lending limitsrelated to material

climate-related financial risks.

Liquidity Risk. Consistent with sound oversight and liquidity risk management, management

should assess whether climate-related financial risks could affect its liquidity position and, if so,

incorporate those risks into their liquidity risk management practices and liquidity buffers.

Other Financial Risk. Management should monitor interest rate risk and other model inputs 

for greater volatility or less predictability due to climate-related financial risks. Where appropriate,

management should account for this uncertainty in their risk measurements and controls.

Management should monitor how climate-related financial risks affect the financial institution's

exposure to risk related to changing prices. While market participants are still researching how 

to measure climate-related price risk, management should use the best measurement methodologies

reasonably available to them and refine them over time.

Operational Risk. Management should consider how climate-related financial risk exposures

may adversely impact a financial institution's operations, control environment, and operational

resilience. Sound operational risk management includes incorporating an assessment across all

business lines and operations, including operations performed by third parties, and considering

climate-related impacts on business continuity and the evolving legal and regulatory landscape.

Legal and Compliance Risk. Management should consider how climate-related financial 

risks and risk mitigation measures affect the legal and regulatory landscape in which the financial 

institution operates. This should include, but is not limited to, taking into account possible changes

to legal requirements for, or underwriting considerations related to, flood or disaster-related

insurance, and ensuring that fair lending monitoring programs review whether and how the financial
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institution's risk mitigation measures potentially discriminate against consumers on a prohibited

basis, such as race, color, or national origin.

Other Nonfinancial Risk. Consistent with sound oversight, the board and management

should monitor how the execution of strategic decisions and the operating environment affect the

financial institution's financial condition and operational resilience. Management should also

consider the extent to which the financial institution's activities may increase the risk of negative

financial impact and should implement adequate measures to account for these risks where

material.