Comptroller Hsu Addresses Forthcoming Climate Risk Guidance and Importance of Diversity

OCC Comptroller Michael Hsu stated he expects detailed interagency guidance on climate risk management principles to follow review of feedback provided on the draft principles published in December 2021 (see related coverage).

In a statement before the Institute of International Bankers, Mr. Hsu reported that the OCC staff was reviewing feedback on the draft principles on climate-related financial risks for banks with more than $100 billion in total consolidated assets. He said the OCC will work with the Federal Reserve and the Federal Deposit Insurance Corporation on an interagency basis to "finalize the principles and develop more detailed guidance." Mr. Hsu described these risks as falling into two broad categories: (i) physical risks, such as those resulting from changes in weather patters, and (ii) transaction risks, such as those resulting from changes in government policy. Mr. Hsu recommended that internationally active banks perform a "what if?" scenario for potential climate risks, just as they would for geopolitical risks.

In addition, Mr. Hsu addressed the importance of diversity and inclusion in the banking industry and broader financial services sector. Mr. Hsu posed two questions:

1. Are banks’ leadership ranks sufficiently diverse to handle the complexities and dynamic challenges of the day?
2. Do banks and banking regulators accurately reflect the communities they serve and represent?

Mr. Hsu argued that "candidates who can enrich an organization’s culture and bring a different perspective to bear should be viewed more favorably than those who will simply fit culturally." He warned that "without inclusion and a sense of belonging, diversity over time becomes a box to be checked, not a state to strive for or a value to be upheld."