Debevoise and Plimpton LLP (“Debevoise”), in conjunction with the Climate Risk Consortium of Risk Management Association (“RMA”), have published The U.S. Climate Regulatory Guide for Banking Organizations that reviews key climate change-related developments in the U.S. legal and regulatory landscape for banking organizations over the last year.

U.S. legal and regulatory activity in the climate and broader environmental, social and governance (“ESG”) spaces increased dramatically in 2022. Federal financial regulators introduced draft guidance and proposed rules providing, for the first time, insight into the contours of the evolving climate risk management and disclosure regimes for banking organizations in the United States. The U.S. climate regulatory framework is expected to become clearer this year with the anticipated finalization of several of these proposals. Banking organizations could face increased litigation and other legal risk on multiple fronts, including as a result of increasing regulatory focus on “greenwashing,” political headwinds opposing the consideration of climate change and other ESG issues and European actions on climate change that could have extraterritorial impact.

The Guide reviews this increased legal and regulatory climate activity in four parts, broadly covering:

• The federal bank regulators’ proposed climate-related financial risk management guidance for large banks and the Federal Reserve Board’s pilot scenario analysis exercise;
• The Securities and Exchange Commission’s (“SEC”) proposed climate-related disclosure rules for public companies and how the proposal compares against international climate and ESG disclosure frameworks;
• The SEC’s rule proposals relating to ESG practices by registered funds and investment advisers, as well as enforcement actions in connection with alleged material misrepresentations and compliance issues concerning ESG strategies; and
• Federal- and state-level political treatment of ESG and developments restricting ESG-related investment practices.

The authors intend to update the Guide as regulation evolves.

Caroline Swett, banking partner at Debevoise, and Alison Hashmall, banking counsel at Debevoise, were lead authors of the Guide. Caroline Swett commented: “Climate risk is one of the areas that has received the most attention from U.S. financial regulators over the past year. We anticipate that regulations and guidance about how financial institutions should address climate-related financial risk will continue to evolve. This Guide is designed to be a useful resource for banks as they continue to develop their internal frameworks that respond to these changes.”

Fran Garritt, Director of Financial Risk and head of RMA’s Climate Risk Consortium, added: “The swift pace of financial regulatory action in the climate space has created a fast-moving target for banks and other financial institutions, as they seek to meet evolving regulatory requirements in the short term, while preparing for longer-term potential effects on the banking system. We hope this Guide will provide financial institutions with a broad and holistic perspective on the U.S. climate regulatory landscape as they formulate their responses and allocate resources accordingly.”

About The U.S. Climate Regulatory Guide for Banking Organizations

The Guide reviews the most important legal and regulatory developments in the climate space, as they pertain to banks. The purpose of the Guide is to provide decision makers at banking organizations with information and perspective they need to formulate effective responses to a changing legal and regulatory landscape.

Additional contributors from Debevoise include capital markets partner Eric Juergens, white collar partner Kristin Snyder, investment management partner Patricia Volhard, finance international counsel John Young, investment management counsel Sheena Paul, ESG senior advisor Ulysses Smith, associates Alexandra Mogul, Tzerina Dizon, Amanda Esteves, Zoe Zissu, and law clerks Tejas Dave and Jessica Szymeczek. From RMA, Fran Garritt led the collaboration and served as a contributor.