US federal banking regulators have announced the withdrawal of the Principles for Climate-Related Financial Risk Management for Large Financial Institutions, ending the short-lived guidance introduced in October 2023.
The decision effectively removes the interagency framework that was intended to help major financial institutions manage risks linked to climate change, claims Federal Reserve.
According to the joint statement, the agencies concluded that the additional principles were not necessary. They cited existing safety and soundness standards as already sufficient to ensure that all supervised institutions maintain effective risk management processes proportionate to their size, complexity, and operational scope. The regulators reaffirmed that these institutions must continue to identify, assess, and mitigate material financial risks, including those arising from emerging factors such as climate-related exposures.
The agencies stated that financial institutions are already expected to demonstrate resilience against a broad spectrum of risks — a standard that includes environmental, social, and governance (ESG)-related challenges when they are deemed material to financial performance or stability.
The interagency principles were originally published jointly by multiple US regulatory bodies, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). However, the OCC had previously withdrawn its participation earlier this year, signalling early divergence in the approach to climate-related financial oversight.
The withdrawal notice, which will appear in the Federal Register, takes effect immediately. It marks a significant policy shift away from the prior administration’s emphasis on integrating climate risk into supervisory frameworks, potentially impacting how banks assess long-term exposures to environmental factors such as extreme weather events, carbon transition risks, and sustainability-linked financing.
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