Dive Brief:
- New York’s Department of Financial Services finalized guidelines for how the state’s regulated banks and mortgage institutions should identify, measure and monitor climate-related risks.
- The guidance focuses on helping the state’s financial institutions deal with the physical risks of the increasing frequency and intensity of severe weather events and the transition risks associated with the economic and behavioral shifts from new policies and regulations.
- DFS said climate change is already causing adverse financial impacts for New York, but businesses should expect annual losses and effects from unpredictable extreme events.
Dive Insight:
New York Gov. Kathy Hochul, a Democrat, said climate change impacts every sector of the state’s economy, including financial services.
The guidance document is designed to guide state businesses through the corporate governance, internal control framework and risk management processes associated with assessing the material risks of climate change. The guidance also covers data aggregation and reporting and climate change scenario analysis.
DFS Superintendent Adrienne Harris said the guidance will give companies a “balanced, data-driven approach” to maintain operational resiliency while adapting to climate change.
“To protect New Yorkers from financial harm, regulated institutions must anticipate and respond to new and emerging risks,” Harris said in the release.
DFS first signaled its interest in addressing climate change risks in the state’s financial industry in October 2020, sending a letter to the industry alerting them to the possibility and seeking feedback.
The industry guidance also includes a section on managing climate-related financial risks while providing fair lending to all communities. DFS warns institutions their actions to address climate-related operational and financial risks could have an “unintended but disproportionate impact” on low- and moderate-income communities, who are disproportionately harmed by natural disasters. The state tells organizations to manage climate change’s financial risks “prudently while continuing to ensure fair access to capital and credit.”
The guidance also recommends organizations explore funding opportunities through the state’s Community Reinvestment Act. The CRA gives institutions tax credits for financing actions that contribute to helping low- to moderate-income communities mitigate and adapt to climate change.
