OCC Withdraws Climate Risk Management Principles

On March 31, 2025, the Office of the Comptroller of the Currency withdrew its participation in the interagency principles for climate-related financial risk management for large financial institutions (the “Climate Principles”). This action was widely expected to occur after the change in presidential administrations, but formalization by the OCC should give banks the confidence to push back against examiners who attempt to impose climate risk management obligations through the nonpublic, supervisory process.

We expect the Board of Governors of the Federal Deposit Insurance Corporation (“FDIC”) and Federal Reserve System (“Federal Reserve”) will withdraw their participation in the Climate Principles in the near future.

In this Legal Update, we provide background on the Climate Principles and the developments that led to their withdrawal.

Background

In 2023, the OCC, Federal Reserve, and FDIC finalized interagency principles for the effective management and supervision of climate-related financial risks. The Climate Principles provided a high-level framework for the management of exposures to climate-related financial risks and were intended to convey consistent supervisory expectations regarding how climate-related financial risks should be managed. While they applied only to US banking organizations with over $100 billion in total consolidated assets, the regulators had implied that banking organizations of any size that had material exposures to climate-related financial risks should consider appropriate risk management practices.

Two FDIC directors and two Federal Reserve governors dissented when voting on the Climate Principles. A common theme in the FDIC dissents was that climate-related financial risk is like many other types of risk, and that focusing on it through dedicated supervisory guidance would distract regulators and organizations from the core safety and soundness mandate. This was a real concern, given that some had attributed the recent failure of several regional banks to mis-prioritization of resources by the banks and their regulators.

Recent Developments

While the regulators initially were strongly committed to the Climate Principles, it became increasingly clear over the last two years that the risk from climate change is not unique to banks, and may even be less material to banks than other sectors of the economy.¹ The OCC, as a single-member agency, arguably is most nimble banking regulator. Therefore, it is not surprising that the acting Comptroller was able to quickly determine that the Climate Principles are overly burdensome and duplicative, and therefore, should be withdrawn.

One of the FDIC directors who dissented from the Climate Principles is now the acting chair of the agency. In his initial goals for leading the agency, he noted that he will ensure the FDIC remains within its statutory mandates, and “stops coloring outside the lines.” Given that his statement was issued on the same day that he withdrew the FDIC from the Network for Greening the Financial System, it seems clear that he continues to oppose the Climate Principles and is likely to withdraw the FDIC’s participation from them.

One of the Federal Reserve governors who dissented from the Climate Principles recently noted that continuing to prioritize non-core risks like climate risk could lead to the misallocation of risk management and supervisory resources. She also expressed concern that it could result in inappropriate government influence over credit allocation decisions and limit or exclude access to banking services for legitimate customers and businesses. Federal Reserve chair Jerome Powell also observed, “Policies to address climate change are the business of elected officials and those agencies that they have charged with this responsibility. The Fed has received no such charge.” Therefore, while the Federal Reserve is much slower at effecting change than the OCC, it seems likely that it will withdraw the Climate Principles in the foreseeable future, and even before formal withdrawal, will not emphasize them in the supervisory process.

¹ E.g., BPI, Fed Pilot Climate Scenario Analysis Exercise (May 22, 2024) (“The climate scenario results show that physical and transition risk are relatively small for the most important asset classes affected.”).