Financial Services Report - Summer 2021

As spring turns to summer, climate change is on our minds. A new day, a new story about how financial institutions are addressing climate-related risks. In the past few months, six major banks—Bank of America, JPMorgan Chase, Citi, Wells Fargo, Goldman Sachs, and Morgan Stanley—have announced goals to achieve net-zero emissions. Underscoring the importance of the issue, Jane Fraser made this announcement on her first day as Citigroup CEO.

These announcements recognize two aspects of achieving net zero emissions. First, achieving carbon neutrality in own operations. This is much easier than the second aspect, which is to ensure that the businesses they finance are carbon-neutral. We haven’t yet seen much in the way of specifics. In the last few weeks, though, Chase released carbon reduction targets to align its financing activities with climate goals of Paris Agreement. Chase explains that it will work with clients in the auto manufacturing, electric power, and oil & gas sectors to achieve reduction in types of carbon intensity. Chase also announced it had achieved carbon neutrality across its operations in 2020.

Taking another approach, Mastercard announced that it will tie executive bonuses to environmental and social goals, evaluating executives on how they contributed to efforts to curb Mastercard’s use of carbon, among other goals. And Amalgamated Bank went further, forming a holding company certified as a public benefit corporation, which means it has a commitment to social and environmental values in its charter and allows the Board to balance financial and nonfinancial interests in making business decisions.

We also are seeing President Biden, Congress, and the federal banking agencies join the field. President Biden issued an Executive Order on Climate-Related Financial Risk directing agencies to analyze and mitigate the risk climate change poses to homeowners, consumers, businesses, the financial system, and the federal government. Several bills have been introduced in Congress focused on understanding the threat climate change poses to the financial system; establishing an advisory committee on climate financial risk made up of experts in climate science, climate economics, and climate financial risk; and updating supervisory guidance on climate risk.

The OCC and FRB, in coordination with FSOC, are looking at the financial stability implications of climate change with a focus on safety and soundness. The FRB has established a committee to develop and implement a program to assess and address climate-related risks. The Treasury Department announced what it called a “coordinated climate policy strategy,” including mitigating risks climate change poses to the stability of the U.S. and global financial system.

This is definitely an area we’ll be keeping an eye on in the coming months. For these developments and all the rest of the news in Beltway, Bureau, Operations, Privacy, Mortgage, and more, read on!

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