New York regulator says financial services should manage climate change risks

Move comes after the state regulator issued climate guidelines for insurers last month.

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New York-licensed banks, asset managers, insurers and other financial organisations will now be expected to assess and manage their exposure to climate change risks, according to a circular issued yesterday by the New York Financial Services Department (NYDFS), the state financial regulator.

Company executives have been specifically directed to conduct firm-wide assessments on the impact of climate change on factors including “credit risk, market risk, liquidity risk, operational risk, reputational risk, and strategy risk”, and to integrate those considerations into their governance frameworks and strategies.

The circular says companies should “consider engaging” with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD) and to begin developing their own approach to climate disclosures.

In addition, non-depository institutions such as asset managers, insurers and investment banks were asked to carry out scenario analysis on the physical and transition risks of climate change on their portfolios.

The revised expectations will apply to around 1,500 banks and other financial groups, and nearly 1,800 insurers which are regulated by the NYDFS. It comes a month after the Department issued new climate guidelines for insurers.

NYDFS Superintendent, Linda Lacewell, said in the circular that “while the US is behind our European counterparts in terms of climate-related supervision, we have learned from their experience, and can take advantage of the supervisory tools that they have developed and will continue collaborating with them in this area going forward”. 

The Department joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) last year – the first US state regulator to do so – and recently hired its first Director of Sustainability and Climate Initiatives, Dr. Yue Chen.

Earlier this year, the NGFS issued first-of-its-kind reference scenarios to assist financial supervisors and regulators assess climate risks within the economy and financial sector.

The NYDFS, which is itself working on integrating climate-related risks into its supervisory mandate, said it will continue to develop further guidance and best practices for regulated organisations.