Lynn Woosley is a Senior Director with Treliant. She is a seasoned executive with extensive risk management experience in regulatory compliance, consumer and commercial credit risk, credit and compliance risk modeling, model governance, regulatory change management, acquisition due diligence, and operational risk in both financial services and regulatory environments.
- Source: occ.treas.gov
Treliant knows environmental, social, and governance (ESG). If your financial services institution needs assistance with assessing your credit portfolio for climate or transition risk, we can help.
In its most recent Semiannual Risk Perspective, the Office of the Comptroller of the Currency (OCC) National Risk Committee reiterated the agency’s commitment to acting on the physical and transition risks that climate changes presents to the financial system.
Physical risks encompass harm to people and property arising from disaster events or long-term environmental changes associated with climate change. Transition risks arise from shifting to a low-carbon economy. Some types of transition risk include government policy, consumer or investor sentiment, technological changes, and supplier and customer capabilities.
The OCC notes that both physical and transition risks can have material impacts on banks and the financial system. To provide information on high-level supervisory expectations and guidance to institutions on managing the risks associated with climate change, the OCC plans to publish principles for managing climate risk. The principles, which are expected to be published in 2022, will build on the recommendations of the Basel Committee’s Task Force on Climate-Related Financial Risks.
The OCC notes that there are significant issues associated with identifying, understanding, and managing climate risks, which will require changes in data collection, risk measurement and management frameworks, and disclosures. There are also significant implications for consumers and communities.
The OCC principles for managing climate risk will initially apply only to large banks. During 2022, in addition to finalizing climate risk management framework guidance, the OCC will conduct industry outreach and review large banks’ progress in establishing climate risk management capabilities that are appropriate for their sizes, complexity, risk profiles, and business models.
To prepare to enhanced scrutiny, large banks that have not completed materiality assessments or begun developing climate risk management capabilities should reevaluate their risk frameworks.