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NCUA Solicits Input on Climate-Related Financial Risk

Risk comes in all shapes and sizes. The risk caused by climate change is often

difficult to detect (a slight increase in temperature, severe storms) and so often

gets overlooked.


The NCUA is choosing to address risks from climate change even though they

aren’t always immediately obvious. Instead, the body that regulates credit unions

is asking for input on how to develop future guidance, regulations, reporting

requirements and/or supervisory approaches for federally insured credit unions,

or FICUs, managing climate-related financial risks.


From now until June 26, 2023, FICUs have been invited to comment to NCUA on

this topic. Comments can be submitted via fax, mail, hand delivery or an e-


The Case for Paying Attention


“Climate change is accelerating and the number—and cost—of climate-related

natural disasters is rising,” wrote the NCUA in its April 25, 2023, notice. As

evidence, NCUA noted that in 2021 the US experienced 20 separate billion-dollar

“weather and climate disaster events,” causing an estimated $153 billion in

damages.


After laying out how costly these now-common events can be, NCUA discusses

why credit unions need to pay attention to climate-related financial risks, and

how these risks could affect their membership and institutional performance.


In its notice NCUA points out that the membership of many credit unions are tied

to a particular industry or community. If the membership group is affected by

climate-related risks, then the credit union will feel the effects, too.


In addition, NCUA explains that “[l]ow income and minority communities are

particularly vulnerable to climate-related risk.”


NCUA has divided the questions it asks its membership and the broader

community into several categories: physical risk, transition risk, operations,

governance, business strategies, risk management, reporting and targets, climate-related opportunities, suggestions for NCUA, and data-gathering.


The category labeled “opportunities” included financing clean energy projects,

such as residential or commercial energy efficiency upgrades and solar

installations. NCUA also asked what regulatory changes would be needed “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.”


Some Early Input


As of June 20th, NCUA had published eight public comments to its request.

A few of the comments opposed the very premise of NCUA’s undertaking,

questioning whether the regulator should be concerned with climate-related

financial risk at all.


For instance, one commenter, Doug Wadsworth, president of Tri-Cities Community Federal Credit Union, maintained that climate change—while a

phenomenon that is undeniably happening—should not be the focus of

regulatory efforts. Instead, he argued that digital currency and AI pose far greater

threats to credit unions.


Taking a slightly different tack, the National Federation of Independent Business

(NFIB), in its May 18th comment letter, expressed concern that small and

independent businesses be protected from any “adverse impact” of a rule on

climate-related financial risks.


To add your voice to the debate, write in before the official comment period

closes.

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