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 Federal financial regulators introduced draft guidance and proposed rules providing, for the first time, insight into the contours of the evolving climate risk management and disclosure regimes for banking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.

About Debevoise and Plimpton LLP

Ranked among the leading practices in the United States, the Debevoise Banking Group advises banks and other financial institutions on the gamut of regulatory, litigation and transactional matters. As banking industry regulation has proliferated in the wake of the financial crisis, the Debevoise Banking Group has grown to more than 20 lawyers with experience that spans the landscape of regulatory regimes and agencies. The practice advises financial industry clients on mergers and acquisitions, U.S. and international regulatory and compliance issues, enforcement matters, capital markets activities, new product development, digital assets and cryptocurrency-related activities.

Debevoise has deep experience in the broad range of issues that arise as ESG concerns and requirements become increasingly important. The firm brings together sophisticated, multidisciplinary and multinational teams with expertise in private and public company governance, asset management, private funds, compliance and enforcement, public and private international law, sustainability and environmental matters, and labor and benefits issues. It provides tailored and practical guidance across the evolving ESG and business integrity spectrum by counseling on trends and prudential issues, delivering concrete legal advice on evolving regulations and policies, and helping clients prepare for the legal, financial and reputational risks arising in this rapidly changing landscape. Visit the firm’s ESG Resource Center for more insights in this area.

About Risk Management Association (RMA) and the RMA Climate Risk Consortium

Founded in 1914, Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk management principles in the financial services industry. RMA promotes an enterprise approach to risk management that focuses on credit risk, market risk and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has 1,600 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 41,000 individuals located throughout North America, Europe, Australia and Asia/Pacific.

Thirty-one large banks from around the world and 11 regional banks in the United States come together through RMA’s Climate Risk Consortium to advance awareness of and address risks associated with climate change. To that end, the Consortium develops frameworks and recommendations for governance, disclosure and risk management principles, and provides an avenue to share experiences with peers.