[Federal Register Volume 87, Number 64 (Monday, April 4, 2022)]
[Notices]
[Pages 19507-19512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07065]


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FEDERAL DEPOSIT INSURANCE CORPORATION

RIN 3064-ZA32


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

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed policy statement; request for comment.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is requesting 
comment on draft principles that would provide a high-level framework 
for the safe and sound management of exposures to climate-related 
financial risks. Although all financial institutions, regardless of 
size, may have material exposures to climate-related financial risks, 
these draft principles are targeted at the largest financial 
institutions, those with over $100 billion in total consolidated 
assets. The draft principles are intended to support efforts by large 
financial institutions to focus on key aspects of climate-related 
financial risk management.

DATES: Comments must be received no later than June 3, 2022.

ADDRESSES: Commenters are encouraged to use the title ``Principles for 
Climate-

[[Page 19508]]

Related Financial Risk Management for Large Financial Institutions'' 
(RIN 3064-ZA32) and to identify the number of the specific question(s) 
for comment to which they are responding. Please send comments by one 
method only directed to:
    <bullet> Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/index.html. Follow the 
instructions for submitting comments on the agency's website.
    <bullet> Email: <a href="/cdn-cgi/l/email-protection#ed8e8280808883999ead8b89848ec38a829b"><span class="__cf_email__" data-cfemail="7e1d1113131b100a0d3e181a171d50191108">[email protected]</span></a>. Include RIN 3064-ZA32 in the 
subject line of the message.
    <bullet> Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments--RIN 3064-ZA32, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
    <bullet> Hand Delivery/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street NW building 
(located on F Street NW) on business days between 7:00 a.m. and 5:00 
p.m.
    <bullet> Public Inspection: All comments received will be posted 
without change to https://www.fdic.gov/resources/regulations/federal-register-publications/index.html--including any personal information 
provided--for public inspection. Paper copies of public comments may be 
ordered from the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-1002, Arlington, VA 22226 or by telephone at 877-275-3342 
or 703-562-2200.

FOR FURTHER INFORMATION CONTACT: Andrew D. Carayiannis, Senior Policy 
Analyst, Capital Markets Strategies Section, <a href="/cdn-cgi/l/email-protection#ef8e8c8e9d8e96868e8181869caf898b868cc1888099"><span class="__cf_email__" data-cfemail="80e1e3e1f2e1f9e9e1eeeee9f3c0e6e4e9e3aee7eff6">[email protected]</span></a>; 
Lauren K. Brown, Senior Policy Analyst, Exam Support Section, 
<a href="/cdn-cgi/l/email-protection#375b564255455840597751535e5419505841"><span class="__cf_email__" data-cfemail="b2ded3c7d0c0ddc5dcf2d4d6dbd19cd5ddc4">[email protected]</span></a>; <a href="/cdn-cgi/l/email-protection#f7859290829b968398858e9496879e83969bb791939e94d9909881"><span class="__cf_email__" data-cfemail="98eafdffedf4f9ecf7eae1fbf9e8f1ecf9f4d8fefcf1fbb6fff7ee">[email protected]</span></a>; Capital Markets and 
Accounting Policy, Division of Risk Management Supervision, 202-898-
6888; Jennifer M. Jones, Counsel, <a href="/cdn-cgi/l/email-protection#2c46494242464342495f6c4a48454f024b435a"><span class="__cf_email__" data-cfemail="e78d8289898d88898294a781838e84c9808891">[email protected]</span></a>; Karlyn Hunter, 
Counsel, <a href="/cdn-cgi/l/email-protection#076c666f72697362754761636e6429606871"><span class="__cf_email__" data-cfemail="543f353c213a2031261432303d377a333b22">[email protected]</span></a>; Amanda Ledig, Senior Attorney, 
<a href="/cdn-cgi/l/email-protection#bfded3dadbd6d8ffd9dbd6dc91d8d0c9"><span class="__cf_email__" data-cfemail="11707d7475787651777578723f767e67">[email protected]</span></a>; Supervision and Legislation, and Enforcement Branch, 
Legal Division, Federal Deposit Insurance Corporation, 550 17th Street 
NW, Washington, DC 20429. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), 800-925-4618.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. General Principles
    A. Governance
    B. Policies, Procedures, and Limits
    C. Strategic Planning
    D. Risk Management
    E. Data, Risk Measurement, and Reporting
    F. Scenario Analysis
III. Management of Risk Areas
    A. Credit Risk
    B. Liquidity Risk
    C. Other Financial Risk
    D. Operational Risk
    E. Legal/Compliance Risk
    F. Other Nonfinancial Risk
IV. Paperwork Reduction Act
V. Request for Comment

I. Introduction

    The effects of climate change and the transition to a low carbon 
economy present emerging economic and financial risks that threaten the 
safety and soundness of financial institutions and the stability of the 
financial system.<SUP>1 2</SUP> Financial institutions are likely to be 
affected by both the physical risks and transition risks associated 
with climate change (referred to in these draft principles as climate-
related financial risks). Physical risks generally 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. 
Transition risks generally refer to stresses to certain financial 
institutions or sectors arising from the shifts in policy, consumer and 
business sentiment, or technologies associated with the changes 
necessary to limit climate change.
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    \1\ In this issuance, the term ``financial institution'' or 
``institution'' means insured state nonmember banks, state-licensed 
insured branches of foreign banks that are subject to the provisions 
of section 39 of the Federal Deposit Insurance Act, and state 
savings associations.
    \2\ For additional background, see generally Financial Stability 
Oversight Council, Report on Climate-Related Financial Risk (2021). 
Further, see Financial Stability Board, The Implications of Climate 
Change for Financial Stability (2020).
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    The economic and financial risks associated with physical risks 
reflect damages to property, infrastructure, and business disruptions, 
all of which have real effects to the value of property securing 
financial institutions' exposures and borrowers' ability to perform on 
their obligations.\3\ Regarding transition risks, certain companies or 
sectors may become less competitive over time as policies implemented 
to reduce carbon emissions or carbon-equivalents to mitigate the risks 
of climate change (e.g., carbon pricing), technological advances, and 
changes in investor and public preferences may all contribute to and 
accelerate a transition to a low-carbon economy, in each case 
potentially resulting in reduced profitably and ability to repay 
obligations for financial institutions' counterparties, as well as 
reductions in the value for certain assets that are less productive in 
a low-carbon environment.<SUP>4 5</SUP> Transition risks may also 
increase litigation, liability, legal and regulatory compliance risks 
associated with climate-sensitive investments and businesses, or pose 
other risks to institutions based on shifts in market or consumer 
preferences. Additionally, the value of financial assets may be 
adversely affected as market participants reflect the future impacts of 
both physical and transition risks on financial performance.
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    \3\ For example, acute physical risks, such as flooding, 
hurricanes, wildfires, and droughts, may result in sudden, 
significant, and recurring damage to residential and commercial real 
estate properties securing exposures held by financial institutions 
or may otherwise disrupt the operations of their business clients. 
Further, longer-term gradual physical risks, such as rising average 
temperatures and sea levels may increase the risk to property values 
and drive migration patterns as individuals and businesses 
prioritize geographic areas less exposed to physical risks, which 
may produce detrimental impacts to household wealth, corporate 
profitably, local economies and municipalities in certain 
geographies. See www.whitehouse.gov, Report on the impact of climate 
change on migration (2021) https://www.whitehouse.gov/wp-content/uploads/2021/10/Report-on-the-Impact-of-Climate-Change-on-Migration.pdf.
    \4\ Reductions in carbon emissions are often considered through 
a ``carbon equivalent amount'', which measures the emissions of 
various greenhouse gases in terms of their equivalent amount of 
carbon dioxide with the same global warming potential. For example, 
see Equation A-1 in 40 CFR part 98.
    \5\ For example, it may become more costly or difficult for 
certain climate-sensitive investments and businesses to comply with 
climate policies. Further, delayed implementation of climate 
policies may result in a more abrupt transition for such climate-
sensitive investments and businesses, increasing the risks and 
ultimate costs of transitioning to a more sustainable economy. 
Advancements in technology may also accelerate the development of 
low-carbon energy sources, while investor and public preferences and 
behavior may result in a shift towards more energy efficient assets 
and companies earlier than otherwise expected. See Network of 
Central Banks and Supervisors for Greening the Financial System, 
NGFS Climate Scenarios for Central Banks and Supervisors (2020); IEA 
and IRENA, Perspectives for the energy transition--Investment needs 
for a low-carbon energy system (2017).
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    From a financial stability perspective, climate-related financial 
risks have the potential to impact financial institutions and the 
economy through both macroeconomic and microeconomic factors, such as 
reductions in economic growth and labor productivity, increased 
borrowing costs, and higher commodities prices, as well as directly to 
financial institutions themselves or through their counterparties.\6\ 
These

[[Page 19509]]

factors contribute to the way in which climate-related financial risks 
can transmit to a significant number of financial institutions and 
raise financial stability concerns.
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    \6\ For example, physical and transition risks also have the 
potential to produce ``feedback loops'' across the financial system 
and economy, which can amplify and reinforce the impacts of climate 
change through procyclical behavior, such as widespread reduction in 
bank lending and lead to declines in asset valuations and economic 
growth. Further, interconnections within the financial system can 
accelerate the spread of a climate-related financial shocks, leading 
to potential contagion effects if institutions experience shocks as 
a result of physical or transition risks. See, for example, 
Financial Stability Board, The Implications of Climate Change for 
Financial Stability (2020); Basel Committee on Banking Supervision, 
Climate-related risk drivers and their transmission channels (2021).
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    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. Weaknesses in 
how institutions identify, measure, monitor, and control the physical 
and transition risks associated with a changing climate could adversely 
affect a financial institution's safety and soundness, as well as the 
overall financial system. Adverse effects could include potentially 
disproportionate impact on the financially vulnerable, including low- 
to moderate-income (LMI) and other disadvantaged households and 
communities.\7\ With this, the manner in which financial institutions 
manage climate-related financial risks to address safety and soundness 
concerns should also seek to reduce or mitigate the impact that 
management of these risks may have on broader aspects of the economy, 
including the disproportionate impact of risk on LMI and other 
disadvantaged communities.
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    \7\ 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 (November 2021).
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    The FDIC recognizes the need for comprehensive risk management 
guidelines that can be implemented consistently. These draft principles 
provide a high-level framework for the safe and sound management of 
exposures to climate-related financial risks, consistent with the risk 
management framework described in existing FDIC rules and guidance, and 
are intended to support efforts by financial institutions to focus on 
the key aspects of climate risk management.\8\ The draft principles 
will help financial institution management make progress toward 
answering key questions on climate exposures and incorporating climate-
related financial risks into financial institutions' risk management 
frameworks. Additionally, the draft principles are intended to support 
the use of scenario analysis as an emerging and important approach for 
identifying, measuring, and managing climate-related risks, as well as 
risk assessment processes related to credit, liquidity, operational, 
legal and compliance, and other financial and nonfinancial risks. Some 
financial institutions, including many large financial institutions, 
are considering climate-related risks and would benefit from additional 
guidance as they develop capabilities, deploy resources, and make 
necessary investments to address climate-related financial risks.
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    \8\ The FDIC has established standards for safety and soundness, 
as required by section 39 of the Federal Deposit Insurance Act, in 
part 364 of FDIC Rules and Regulations.
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    Although all financial institutions, regardless of size, may have 
material exposures to climate-related financial risks, these draft 
principles are targeted at the largest financial institutions, those 
with over $100 billion in total consolidated assets.\9\ The draft 
principles are an initial step to promote a consistent understanding of 
the effective management of climate-related financial risks. The FDIC 
plans to elaborate on these draft principles in subsequent guidance 
that would distinguish roles and responsibilities of boards of 
directors (boards) and management, incorporate the feedback received on 
the draft principles, and consider lessons learned and best practices 
from the industry and other jurisdictions. In keeping with the FDIC's 
risk-based approach to supervision, the FDIC intends to appropriately 
tailor any resulting supervisory expectations to reflect differences in 
institutions' circumstances such as complexity of operations and 
business models. Through this and any subsequent climate-related 
financial risk guidance, the FDIC will continue to encourage 
institutions to prudently meet the financial services needs of their 
communities.
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    \9\ Generally, effective risk management practices should be 
appropriate to the size of the institution and the nature, scope, 
and risk of its activities. See, e.g., Appendix A to part 364. For 
purposes of these draft principles, the FDIC generally believes that 
these standards are particularly salient for the largest financial 
institutions, those with over $100 billion in total consolidated 
assets.
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II. General Principles

A. Goverance

    An effective risk governance framework is essential to a financial 
institution's safe and sound operation. A financial institution's board 
and management should demonstrate an appropriate understanding of 
climate-related financial risk exposures and their impact on risk 
appetite to facilitate oversight. Sound governance includes reviewing 
information necessary to oversee the financial institution, allocating 
appropriate resources, assigning climate-related financial risk 
responsibilities throughout the organization (i.e., committees, 
reporting lines, and roles), and clearly communicating to staff 
regarding climate-related impacts to the institution's risk profile. 
Responsibility and accountability may be integrated within existing 
organizational structures or by establishing new structures for 
climate-related financial risks. Where dedicated units are established, 
the board and management should clearly define these units' 
responsibilities and interaction with existing governance structures.
    The board should have adequate understanding and knowledge to 
assess the potential impact of climate-related risks on the financial 
institution and to address and oversee these risks within the 
institution's strategy and risk appetite, including an understanding of 
the potential ways in which these risks could evolve over various time 
horizons and scenarios. Relevant time horizons may include those that 
extend beyond the institution's typical strategic planning horizon. The 
board should actively oversee the financial institution's risk-taking 
activities and hold management accountable for adhering to the risk 
governance framework. Management is responsible for executing the 
financial institution's overall strategic plan. This responsibility 
includes effectively managing all risks, including climate-related 
financial risks, and their effects on the institution's financial 
condition. Management should also hold staff accountable for 
controlling risks within established lines of authority and 
responsibility. Additionally, management is responsible for regularly 
reporting to the board on the level and nature of risks to the 
institution, including climate-related financial risks.

B. Policies, Procedures, and Limits

    Management should incorporate climate-related risks into policies, 
procedures, and limits to provide detailed guidance on the 
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 the distinctive characteristics 
of climate-related risks and changes to the institution's activities.

C. Strategic Planning

    The board and management should consider material climate-related 
financial risk exposures when setting the institution's overall 
business

[[Page 19510]]

strategy, risk appetite, and financial, capital, and operational plans. 
As part of forward-looking strategic planning, the board and management 
should address the potential impact of climate-related financial risk 
exposures on the institution's financial condition, operations 
(including geographic locations), and business objectives over various 
time horizons. The board and management should also consider climate-
related financial risk impacts on stakeholders' expectations, the 
institution's reputation, and LMI and other disadvantaged households 
and communities, including physical harm or access to bank products and 
services. The FDIC recognizes that the incorporation of material 
climate-related financial risks into various planning processes is 
iterative as measurement methodologies, models, and data for analyzing 
these risks continue to evolve and mature over time.
    Any climate related strategies, including any relevant corporate 
social responsibility objectives, should align with and support the 
institution's broader strategy, risk appetite and risk management 
framework. In addition, where institutions engage in public 
communication of their climate-related strategies, boards and 
management should ensure that any public statements about an 
institution's climate related strategies and commitments are consistent 
with their internal strategies and risk appetite statements.

D. Risk Management

    Climate-related financial risks typically 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 climate-related financial risk 
exposures within the institution's existing risk management framework. 
A financial institution should employ a comprehensive process to 
identify emerging and material risks stemming from the institution's 
business activities and associated exposures. The risk identification 
process should include input from stakeholders across the organization 
with relevant expertise (e.g., business units, independent risk 
management, 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, institutions should develop 
processes to measure and monitor material climate-related financial 
risks and to inform management about the materiality of those risks. 
Material climate-related financial risk exposures should be clearly 
defined, aligned with the institution's risk appetite, and supported by 
appropriate metrics (e.g., risk limits and key risk indicators) and 
escalation processes. Boards and management should also incorporate 
climate-related risks into their internal control frameworks, including 
internal audit.
    Tools and approaches for measuring and monitoring exposure to 
climate-related risks include, among others, exposure analysis, heat 
maps, climate risk dashboards and scenario analysis. These tools can be 
leveraged to assess an 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 an institution's business model from climate change.

E. Data, Risk Measurement, and Reporting

    Sound climate risk management depends on the availability of 
relevant, accurate, and timely data. Management should incorporate 
climate-related financial risk information into the institution's 
internal reporting, monitoring, and escalation processes to facilitate 
timely and sound decision-making across the institution. Effective risk 
data aggregation and reporting capabilities allow management to capture 
and report material and emerging climate-related financial risk 
exposures, segmented or stratified by physical and transition risks, 
based upon the complexity and types of exposures. Data, risk 
measurement, modeling methodologies, and reporting continue to evolve 
at a rapid pace; management should monitor these developments and 
incorporate them into their climate risk management as warranted.

F. Scenario Analysis

    Climate-related scenario analysis is emerging as an important 
approach for identifying, measuring, and managing climate-related 
risks. For the purposes of this guidance, climate-related scenario 
analysis refers to exercises used to conduct 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. 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 
institutions can apply alongside existing risk management practices to 
evaluate the resiliency of an institution's strategy and risk 
management to the structural changes arising from climate-related 
risks.
    Management should develop and implement climate-related scenario 
analysis frameworks in a manner commensurate to the institution's size, 
complexity, business activity, and risk profile. These frameworks 
should include clearly defined objectives that reflect the 
institution's overall climate risk management strategies. These 
objectives could include, for example, exploring the impacts of 
climate-related risks on the institution's strategy and business model, 
identifying and measuring vulnerability to relevant climate-related 
risk factors including physical and transition risks, and estimating 
climate-related exposures and potential losses across a range of 
plausible scenarios. In the near term, a climate-related scenario 
analysis framework can also assist the institution in identifying data 
and methodological limitations and uncertainty in climate risk 
management and informing the adequacy of its climate risk management 
framework.
    Climate-related scenario analyses should be subject to oversight, 
validation, and quality control standards that would be commensurate to 
their risk. Climate-related scenario analysis results should be clearly 
and regularly communicated to all relevant individuals within the 
institution, including an appropriate level of information necessary to 
effectively convey the assumptions, limitations, and uncertainty of 
results.

III. Management of Risk Areas

    A risk assessment process is part of a sound risk governance 
framework, and it allows boards and management to identify emerging 
risks and to develop and implement appropriate strategies to mitigate 
those risks. Boards and 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. 
The FDIC will elaborate on these risk assessment principles in 
subsequent guidance.

A. Credit Risk

    The board and management should consider climate-related financial 
risks as part of the underwriting and ongoing monitoring of portfolios. 
Effective credit risk management practices could

[[Page 19511]]

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. The board 
and management should determine credit risk appetite and lending limits 
related to these risks.

B. Liquidity Risk

    The board and management should assess whether climate-related 
financial risks could affect liquidity and, if so, incorporate those 
risks into their liquidity risk management practices and liquidity 
buffers.

C. 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 include 
corresponding measures of conservatism in their risk measurements and 
controls. The board and management should monitor how climate-related 
financial risks affect their institution's exposure to risk related to 
changing prices. While market participants are still researching how to 
measure climate price risk, the board and management should use the 
best measurement methodologies reasonably available to them and refine 
them over time.

D. Operational Risk

    The board and management should consider how climate-related 
financial risk exposures may adversely impact an institution's 
operations, control environment, and operational resilience. Sound 
operational risk management includes incorporating an assessment across 
all business lines and operations, including third-party operations, 
and considering climate-related impacts on business continuity and the 
evolving legal and regulatory landscape.

E. Legal/Compliance Risk

    The board and management should consider how climate-related 
financial risks and risk mitigation measures affect the legal and 
regulatory landscape in which the institution operates. This 
consideration includes possible changes to legal requirements for, or 
underwriting considerations related to, flood or disaster related 
insurance. It also includes possible fair lending concerns if the 
financial institution's risk mitigation measures disproportionately 
affect communities or households on a prohibited basis such as race or 
ethnicity.

F. 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 as discussed in the strategic planning section. 
The board and management should also consider the extent to which the 
financial institution's activities may increase the risk of negative 
financial impact from reputational damage, liability, or litigation, 
and implement adequate measures to account for these risks where 
material.

IV. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 
states that no agency may conduct or sponsor, nor is the respondent 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number.
    These draft principles do not revise any existing, or create any 
new, information collections pursuant to the PRA. Therefore, the FDIC 
is not making a submission to OMB.

V. Request for Comment

    The FDIC welcomes feedback on all aspects of these draft 
principles, including on the following questions. Among other uses, the 
FDIC would consider responses in connection with developing any future 
guidance on climate-related financial risks.

A. Applicability

    Question 1: What additional factors, for example asset size, 
location, and business model, should inform financial institutions' 
adoption of these principles?

B. Tailoring

    Question 2: How could future guidance assist a financial 
institution in developing its climate-related financial risk management 
practices commensurate to its size, complexity, risk profile, and scope 
of operations?

C. General

    Question 3: What challenges do financial institutions face in 
incorporating these draft principles into their risk management 
systems? How should the FDIC further engage with financial institutions 
to understand those challenges?
    Question 4: Would regulations or guidelines prescribing particular 
risk management practices be helpful to financial institutions as they 
adjust to doing business in a changing climate?

D. Current Risk Management Practices

    Question 5: What specific tools or strategies have financial 
institutions used to successfully incorporate climate-related financial 
risks into their risk management frameworks?
    Question 6: How do financial institutions determine when climate-
related financial risks are material and warrant greater than routine 
attention by the board and management?
    Question 7: What time horizon do financial institutions consider 
relevant when identifying and assessing the materiality of climate-
related financial risks?
    Question 8: What, if any, specific products, practices, and 
strategies--for example, insurance or derivatives contracts or other 
capital market instruments--do financial institutions use to hedge, 
transfer, or mitigate climate-related financial risks?
    Question 9: What, if any, climate-related financial products or 
services--for example, ``green bonds,'' derivatives, dedicated 
investment funds, or other instruments that take climate-related 
considerations into account--do financial institutions offer to clients 
and customers? \10\ What risks, if any, do these products or services 
pose?
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    \10\ ``Green bonds'' generally refer to fixed-income securities, 
the proceeds of which are earmarked for environmentally beneficial 
investment.
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    Question 10: How do financial institutions currently consider the 
impacts of climate-related financial risk mitigation strategies and 
financial products on households and communities, specifically LMI and 
other disadvantaged communities? Should the agencies modify existing 
regulations and guidance, such as those associated with the Community 
Reinvestment Act, to address the impact climate-related financial risks 
may have on LMI and other disadvantaged communities?

E. Data, Disclosures, and Reporting

    Question 11: What, if any, specific climate-related data, metrics, 
tools and models from borrowers and other counterparties do financial 
institutions need to identify, measure, monitor, and control their own 
climate-related financial risks? How do financial institutions 
currently obtain this information? What gaps and other concerns are 
there with respect to these data, metrics, tools or models?
    Question 12: How could existing regulatory reporting requirements 
be augmented to better capture financial

[[Page 19512]]

institutions' exposure to climate-related financial risks?

F. Scenario Analysis

    Question 13: Scenario analysis is an important component of climate 
risk management that requires assumptions about plausible future states 
of the world. How do financial institutions use climate scenario 
models, analysis, or tools and what challenges do they face?
    Question 14: What factors are most salient for the FDIC to consider 
when designing and executing scenario analysis exercises?

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on March 29, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-07065 Filed 4-1-22; 8:45 am]
BILLING CODE 6714-01-P


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