[Federal Register Volume 88, Number 79 (Tuesday, April 25, 2023)]
[Notices]
[Pages 25028-25031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08715]


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NATIONAL CREDIT UNION ADMINISTRATION

[NCUA-2023-0045]
RIN 3133-AF52


Climate-Related Financial Risk

AGENCY: National Credit Union Administration (NCUA).

ACTION: Request for information and comment.

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SUMMARY: The NCUA is seeking public input on current and future climate 
and natural disaster risks to federally insured credit unions (FICUs), 
related entities, their members, and the National Credit Union Share 
Insurance Fund (SIF). The NCUA also seeks input of any interested 
parties on the development of potential future guidance, regulation, 
reporting requirements, and/or supervisory approaches for FICUs' 
management of climate-related financial risks.

DATES: For consideration, comments must be received on or before June 
26, 2023.

ADDRESSES: You may submit comments by any one of the following methods. 
Please send comments by one method only.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments for NCUA Docket [2023-
XXXX].
     Fax: (703) 518-6319. Include ``[Your name] Comments on 
``Request for Information and Comment on Climate-Related Financial 
Risk.''
     Mail: Address to Melane Conyers-Ausbrooks, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.
     Hand Delivery/Courier: Same as mailing address.
    Public Inspection: You may view all public comments on the Federal 
eRulemaking Portal at https://www.regulations.gov as submitted, except 
for those we cannot post for technical reasons. NCUA will not edit or 
remove any identifying or contact information from the public comments 
submitted. If you are unable to access public comments on the internet, 
you may contact the NCUA for alternative access by calling (703) 518-
6540 or emailing [email protected].

FOR FURTHER INFORMATION CONTACT: 
    Policy and Analysis: Rachel Cononi, Deputy Chief Economist (703) 
303-2437 and Lisa Roberson, Deputy Director, Office of Consumer 
Financial Protection (703) 548-2466.
    Legal: Marvin Shaw, Senior Staff Attorney, (703) 518-6540; or by 
mail at National Credit Union Administration, 1775 Duke Street, 
Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION: 

NCUA Overview

    The NCUA is an independent federal agency that insures shares at 
FICUs \1\ and charters and regulates federal credit unions (FCUs). The 
NCUA is charged with protecting the safety and soundness of FICUs and, 
in turn, the SIF through regulation and supervision. The NCUA also 
works to protect credit union members and consumers.
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    \1\ Throughout this Request for Information, the term FICUs and 
``credit union'' is used interchangeably.
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    The NCUA's mission is to ``protect the system of cooperative credit 
and its member-owners through effective chartering, supervision, 
regulation, and insurance.'' \2\ Consistent with these aims, the NCUA 
has statutory

[[Page 25029]]

responsibility for a wide variety of regulations that protect the 
credit union system, members, and the SIF.
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    \2\ NCUA Mission and Values web page.
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Climate Risk and Its Relevance in the Financial Sector

    Climate change is accelerating and the number--and cost--of 
climate-related natural disasters is rising. The economic effects of 
these events are clear. Each year, natural disasters like hurricanes, 
wildfires, droughts, and floods impose a substantial financial toll on 
households and businesses alike. The physical effects of climate change 
along with associated transition costs pose significant risks to the 
U.S. economy and the U.S. financial system.
    In 2021, the United States experienced 20 separate billion-dollar 
weather and climate disaster events, which caused an estimated $153 
billion in damage. Overall, 2021 was the third most costly year on 
record for these types of events and it was the seventh consecutive 
year in which 10 or more billion-dollar weather and climate disaster 
events have occurred in the United States. In 2022, there were an 
estimated 15 billion-dollar disaster events making it the eighth 
straight year with 10 or more billion-dollar disaster events. Together, 
these events caused an estimated $165 billion in damage.\3\
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    \3\ NOAA National Centers for Environmental Information (NCEI) 
U.S. Billion-Dollar Weather and Climate Disasters (2023). https://www.ncei.noaa.gov/access/billions/, DOI: 10.25921/stkw-7w73.
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    Climate-related financial risks can be grouped into two broad 
categories--physical risk and transition risk.\4\ Physical risk refers 
to harm to people and property caused by discrete, climate-related 
events like hurricanes, wildfires, and heatwaves, as well as longer-
term, chronic phenomena, including changes in precipitation patterns, 
sea level rise, and higher average temperatures. Transition risk refers 
to stress on institutions or sectors caused by measures taken to move 
towards a less carbon-intensive economy. This includes responding to 
public policy changes, adopting new technologies, and adapting to 
shifts in consumer and investor preferences, which may lead to higher 
costs and substantial shifts in asset values. If these changes occur in 
a disorderly fashion, the effect on individuals, businesses, 
communities, and financial institutions could be sudden and disruptive.
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    \4\ See, e.g., Basel Committee on Banking Supervision, Climate-
related Risk Drivers and Their Transmission Channels (April 2021); 
Financial Stability Board, The Implications of Climate Change for 
Financial Stability (November 23, 2020); and Market Risk Advisory 
Committee of the Commodity Futures Trading Commission, Managing 
Climate Risk in the U.S. Financial System (September 9, 2020).
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    Economic and financial disruptions and uncertainties arising from 
both the physical and transition risks could affect the credit union 
industry across many dimensions. Climate-related physical and 
transition risks tend to manifest as traditional financial risks, 
including credit risk, liquidity risk, market risk, and operational 
risk. For example, disruptions in economic activity caused by climate-
related weather events like flooding or wildfires may affect household 
income and the ability to stay current on household financial 
obligations. The property damage associated with such events could 
affect the value of homes and the mortgages collateralized by 
residential real estate. These events pose similar risks to businesses 
and mortgages collateralized by commercial real estate.
    The policy and technological changes needed to reduce the 
environmental impact of human activities and move towards a less 
carbon-intensive economy may also have a wide range of effects on the 
economy, businesses, consumers, and thus credit unions. For instance, 
the collateral value of motor vehicles may be affected as consumer 
preferences shift from gasoline-powered vehicles to electric and hybrid 
vehicles. Efforts to reduce greenhouse gas emissions could lead to 
significant adjustments in sectors of the economy that are greenhouse 
gas-intensive, including the energy, transportation, manufacturing, and 
agricultural sectors. Such adjustments may create new business 
opportunities, such as the creation of biodiesel products. Households, 
businesses, and credit unions with direct or indirect ties to these 
sectors would also be affected. Thus, any weaknesses in how a credit 
union identifies, measure, monitors, and mitigates physical and 
transition risks could adversely affect a credit union's safety and 
soundness.
    Credit unions need to consider climate-related financial risks, and 
how they could affect their membership and institutional performance. 
For instance, a credit union's field of membership is often tied to a 
particular industry or community. To remain resilient and retain the 
ability to offer their members access to safe, fair, and affordable 
financial services, credit unions may need to consider adjustments to 
their fields of membership as well as the types of loan products they 
offer.
    Low-income and minority communities are particularly vulnerable to 
climate-related financial risk. Climate-related disasters can cause 
property damage and can also lead to job losses and undermine economic 
output, reducing already limited household income and wealth and 
diminishing access to capital. Additionally, absent any mitigating 
actions, changes in government policy, programs, or guidelines to 
transition to a less carbon-intensive economy may unintentionally 
increase the cost of homeownership in vulnerable communities. 
Financially vulnerable households and communities are the least able to 
absorb the costs associated with climate-related disasters, so these 
consumers may have more difficulty adapting to changes in government 
policies and the natural environment. Thus, climate-related financial 
risks may be amplified for FICUs serving these communities.
    Climate change presents several complex conceptual and practical 
challenges not only for credit unions, but also for the NCUA. Just as 
credit unions must continue to adapt to account for climate-related 
financial risks, the NCUA will need to evolve its understanding of the 
impact on credit unions, credit union members, the credit union system, 
and the SIF. The information collected from the responses to the 
questions below will assist the agency in developing tools to identify 
and assess current and future risks to FICUs and the SIF. Stakeholder 
feedback will also inform the agency's future decisions on the best way 
to address these risks. And, the responses of interested parties will 
allow the agency to better understand how credit union members may be 
affected by these risks.

Request for Comment

    The Board seeks comments on the current and future climate and 
natural disaster risks faced by FICUs. The NCUA is broadly interested 
in understanding stakeholders' views and experiences in this area. 
Commenters are also encouraged to discuss any and all relevant issues 
they believe the Board should consider with respect to the financial 
risks associated with climate change. This includes, but is not limited 
to, risks posed to, or stemming from, field of membership, lending, 
investments, other assets, deposits, underwriting standards, insurance 
coverage, liquidity, and capital.
    The Board's request for information should not imply any intention 
to modify any existing requirements applicable to FICUs and does not 
grant FICUs any new authorities or limit any existing authorities. The 
request for information does not speak to the permissibility or 
impermissibility of any specific activity. Additionally, any

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information provided by credit unions as part of this RFI will not be 
used in the examination and supervision of individual credit unions. 
Any new requirements for credit unions associated with climate-related 
financial risk would require changes to examination and supervision 
procedures and Board action and approval before implementing.
    Moreover, as a prudential financial regulator, the NCUA does not 
have expertise in climate science. As set forth in the questions below, 
the NCUA is seeking input that would strengthen its ability to identify 
and assess credit unions' current and future climate and natural 
disaster risk. The NCUA is also seeking input on opportunities to 
enhance the agency's supervision and regulation of each regulated 
entity's management of such risks.

Physical Risk

    1. Climate-related events, including floods, sea level rise, 
hurricanes, winds, wildfires, and drought, may affect credit union 
operations (for example, office buildings, supply chain); commercial 
and residential real estate; agricultural, commercial, and industrial 
lending; and small business lending. What climate-related physical 
risks, if any, are affecting the industry? How might physical risks and 
the impact of these risks on credit unions and their members change 
over time?
    2. What risk management strategies could institutions implement to 
prepare for or minimize the effects of physical risk? Is there anything 
regulators should do to help institutions address physical risks?
    3. What impact are physical risks expected to have on credit union 
members, particularly financially vulnerable populations, including 
lower-income communities, communities of color, Native American, and 
other under-resourced communities? What steps could credit unions take 
to mitigate physical risks to ensure continued lending to these 
populations?

Transition Risk

    4. Transition risks from climate change can come from government 
policy changes, including changes to zoning laws; other federal, state 
and local laws and regulations; technological changes; and consumer and 
market demand. What climate-related transition risks are affecting or 
could affect credit unions in the various areas of business activities, 
including, but not limited to, operations, real estate lending, 
commercial lending, and small business lending?
    5. What risk management strategies could credit unions implement to 
prepare for or minimize the effects of transition risk? Is there 
anything regulators can do to help credit unions address transition 
risk?
    6. What effects are transition risks expected to have on credit 
union members, particularly financially vulnerable populations, 
including lower-income communities, communities of color, Native 
American, and other under-resourced communities? What steps could 
credit unions take to mitigate transition risks to ensure continued 
lending to these populations?

Operations

    7. What adjustments should credit unions make to their operations 
(including relationships with supply chain and third parties, new 
product and service offerings, among others) in response to climate-
related financial risks?

Governance

    8. What role should a credit union's board of directors have in the 
oversight and analysis of financial risks due to climate change?
    9. How can credit unions incorporate climate-related financial 
risks into their overall risk management and governance framework?
    10. Do credit unions have board members, committees, or senior 
management functions that are responsible for climate-related financial 
risks? If yes, please provide examples.
    11. What are the top barriers/challenges for credit unions in 
designating board members, committees, and/or senior management 
functions to be responsible for climate-related financial risks?
    12. Do credit union boards and senior management have, or are they 
aware of and have an understanding of, the tools and resources 
necessary to evaluate and address climate-related financial risk? What, 
if any, are other barriers for addressing climate-related financial 
risks?

Business Strategies

    13. How should credit unions consider climate-related financial 
risks in developing business strategies? How do these risks impact 
product and service offerings?
    14. In what ways may credit unions need to incorporate climate-
related financial risks into business strategies and product and 
service offerings?
    15. If you are a credit union, has your board and management 
assessed the impact of climate change on the credit union's products 
and services? If yes, please briefly describe how you have assessed the 
impact of climate change on your credit union's products and services.
    16. What barriers or challenges do credit unions face in 
considering climate change in business strategies and product 
offerings? Does your board or senior management believe climate change 
is a material risk to the credit union's business?
    17. Do credit unions have sufficient expertise or are they aware of 
and have an understanding of the tools and resources necessary to 
address the financial risks and opportunities associated with climate 
change and their impact on credit union performance? Do you think 
considering climate-related financial risks may put credit unions at a 
competitive disadvantage?
    18. Do credit unions take steps to assess, reduce, or mitigate its 
climate impact? If you are a credit union answering this question, 
please describe what your credit union has done. If your credit union 
has not taken such steps, do you plan to do so and what is your time 
frame? If your credit union does not plan to take such steps, please 
briefly describe the reason(s) for not doing so. What barriers exist 
that prevent your credit union from taking such steps?

Risk Management

    19. What methods can credit unions use to identify, measure, 
monitor, manage, and report on their exposure to climate-related 
financial risks? Please provide a brief description of the risk 
management process credit unions should take. If you are a credit 
union, please provide a link to your climate policy. If you are a 
credit union and do not have a risk management process, do you plan to 
develop a process? What is the anticipated time frame for developing 
such a process? If you do not plan to develop such a process, please 
explain your rationale for this decision.
    20. Credit unions typically evaluate credit risk, interest rate 
risk, liquidity risk, transaction risk, strategic risk, reputation 
risk, and compliance risk. How do climate-related financial risks 
impact these traditional risk areas? To what extent should a credit 
union consider climate change in analyzing these and other existing 
risk factors?
    21. What risk mitigation strategies can credit unions use to 
transfer some or all of the financial risks associated with climate 
change? Are these mitigation tools cost effective?
    22. When credit unions consider climate change in analyzing 
existing

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risk factors, should they include the risk of adverse effects of 
climate change on financially vulnerable populations, including lower-
income communities, communities of color, Native American, and other 
disadvantaged or under-resourced communities? If you are a credit 
union, are you considering climate-related financial risks specific to 
financially-vulnerable populations?
    23. If your credit union does not currently consider climate change 
in analyzing its existing risk factors, do you anticipate doing so? How 
long will it take to do so? If you do not plan to do so, please briefly 
describe your reasons or barriers.
    24. What are the top barriers for credit unions to consider (or 
that credit unions have encountered) in creating a risk management 
process for climate-related financial risks and/or including climate 
change in its analysis of existing risk factors? Does your board or 
senior management not consider climate change as posing a material risk 
to your credit union's business?
    25. What types of data or products are necessary to assist credit 
unions in evaluating exposure to climate-related financial risks?
    26. Do credit unions have sufficient understanding of the climate-
related risk management process? Do credit unions have sufficient 
understanding of how climate change affects existing risk factors? 
Please specify any other barriers credit unions face in assessing 
climate-related risk.
    27. If your credit union is involved in the mortgage business, what 
tools does your credit union use to manage flood risk? What additional 
tools would be helpful to your credit union?

Reporting and Targets

    28. What internal reporting systems are you aware of that would 
assist credit unions in evaluating climate-related financial risks? 
Please provide a brief description of these internal reporting systems. 
If provided by third parties, what are the costs of these reporting 
systems?

Climate-Related Opportunities

    29. Climate change and efforts to address climate change may also 
present new opportunities for credit unions. What products and services 
do credit unions offer in response to physical and transition risk (for 
example renewable energy loan products and services, such as loans for 
solar power generation or biodiesel development)? What are the top 
drivers for offering these products and services?
    30. Are you aware of credit unions or does your credit union 
finance clean energy projects such as residential or commercial energy 
efficiency upgrades and solar installations? Is this financing of clean 
energy products just one of many services provided by the credit union 
or part of an overall business strategy? If you provide clean energy 
products, please provide the estimated size of your clean energy 
portfolio and what percent it represents of your overall lending. If 
no, please briefly describe any challenges for credit unions to 
offering this type of lending. Please also discuss the barriers to 
underwriting clean energy loans within under-resourced communities.
    31. Each type of lending involves various areas of expertise such 
as underwriting, guidance for loan loss reserves, and/or technical 
assistance such as how to lend or acquire interest in climate-related 
and environmentally conscious loan products. What kind of support do 
credit unions need to expand products and services? Please describe any 
barriers to entry as well as the types of information or resources 
needed to facilitate a credit union's ability to offer climate-related 
and environmentally conscious loan products.
    32. Are there any climate-related opportunities, in addition to 
renewable energy, that credit unions should consider?
    33. What regulatory changes would be necessary to encourage credit 
unions to develop products and services designed to capitalize on 
opportunities presented by the transition to clean energy and a less 
carbon intensive economy?

Suggestions for NCUA

    34. The NCUA understands that managing the financial risks of 
climate change is an evolving field and new to some credit unions. The 
NCUA is exploring several options to support credit unions in these 
efforts, including sharing industry best practices, providing guidance 
on how to manage the potential financial risks from climate change, 
convening workshops with the industry to discuss climate-related 
financial risk topics, and hosting educational seminars on how climate 
change may impact the financial system and individual credit unions. 
What efforts would be the most beneficial to credit unions?
    35. Should the NCUA modify its examination procedures and 
supervisory posture in relation to climate-related financial risk? This 
would be including, but not limited to, Flood Disaster Protection Act, 
Disaster Preparedness reviews, CAMELS ratings, and assessments of the 
level and direction of the various areas of risk.

Data Gathering

    36. How can the NCUA support efforts to develop standards of 
classification and data reporting on climate-related financial risks?
    37. What data could the NCUA collect to improve credit unions' 
understanding of climate-related financial risks and support credit 
union efforts to manage these risks?

Questions for NCUA

    38. Please provide any questions or comments not covered in this 
request for information that you would like the NCUA to address 
regarding to climate-related financial risk.
    Authority: 12 U.S.C. 1756 and 1784.

    By the NCUA Board on April 20, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
[FR Doc. 2023-08715 Filed 4-24-23; 8:45 am]
BILLING CODE 7535-01-P