By Isla Binnie and Nupur Anand
A recent review by the Office of the Comptroller of the Currency (OCC) has revealed that major U.S. banks are still in the early stages of assessing and managing the risks posed by climate change to their businesses. The review, which included 22 large banks, found that while some progress has been made, significant work is needed in certain areas.
According to sources familiar with the matter, the OCC found that all banks had completed some level of risk identification related to climate change, but the approaches and stages of development varied widely. This information was conveyed in a letter sent to the banks' chief executives, highlighting the need for further action.
The review sheds light on the deficiencies identified by regulators in banks' efforts to address climate risks, which could potentially put trillions of dollars of assets at risk. Most banks were found to be in the early stages of incorporating climate risk into their strategic and operational planning, internal audit processes, and risk appetite assessments.
Furthermore, the OCC found that several banks had not yet started working on climate scenario analysis, and that significant efforts were needed to implement governance frameworks around climate risk. Regulators and banks worldwide are grappling with how to measure and manage the financial implications of a changing climate and evolving energy policies.
While some industry experts question the immediate threat that climate change poses to bank stability compared to other risks like a recession, the OCC's review underscores the need for proactive measures to address climate risks. The OCC, along with other regulatory bodies, has provided guidance on managing these risks and will continue to conduct supervisory activities to ensure banks are adequately prepared.
In conclusion, the OCC's findings highlight the importance of banks taking proactive steps to assess and manage the risks posed by climate change. Failure to address these risks could have significant implications for banks' financial stability and the broader financial system.