Ceres Accelerator: NCUA Lags Behind Some Regulators on Climate Issues

Non-profit focused on sustainability lays out recommendations for credit union agency.

The NCUA has not done as much as some financial regulators have in addressing climate change issues, according to the latest “Climate Risk Scorecard” released by the Ceres Accelerator for Sustainable Capital Markets.

However, the non-profit, which emphasizes sustainability to companies and policymakers, did say the agency has made some progress on those issues.

“Other banking regulators, including the Federal Reserve, have taken initial steps to assess how climate change can affect their covered institutions,” an analysis accompanying the scorecard states. “The NCUA could follow suit for credit unions and develop guidance on how they should integrate climate change into their risk management, internal controls, business strategies, governance, and disclosure practices.”

According to the Ceres website, the scorecard “assesses ten federal financial agencies on their actions to protect our capital markets, financial institutions, and communities from climate-related financial risks.”

Recommendations and Reaction

In releasing its report, Ceres said the NCUA could use its connection with the Federal Financial Institutions Examination Council to modernize risk definitions as part of the supervision process and influence best practices on climate risks among the largest credit unions.

NCUA board Chairman Todd Harper, a Democrat, has attempted to make climate change a higher priority at the agency, but the board’s two Republicans, Rodney Hood and Kyle Hauptman, have been reluctant to do so. Hood’s term expires next month, which will give President Biden an opportunity to nominate a replacement who could make climate risks a priority.

However, that effort could spark a fight on Capitol Hill, where a House Financial Services Committee subcommittee on Tuesday held a hearing during which Republicans argued financial regulators should play no role on climate risk issues.

But the financial sector is vulnerable to climate change, said Steven Rothstein, managing director of Ceres, in releasing the scorecard.

“The sector needs to better integrate climate risk into its supervision of financial entities and put stronger practices in place to assess the consequences of the climate-related scenarios that will arise unless we make systemic changes,” he stated.

The NCUA’s Scorecard

Ceres evaluated the financial regulators in several areas. For the NCUA specifically, it reported that the agency over the past year has made:

–Substantial progress in affirming climate as a systemic risk.

–Some progress in expanding its climate-related capabilities.

–Some progress in increasing transparency on risk-management activities.

–Some progress in assessing climate risks on financially vulnerable communities.

–Some progress in producing research and data on climate risk.

–No progress in developing climate-related disclosures.

–Some progress in developing climate risk supervisory guidance.

–No progress in including climate risk in regulation. (The SEC was the only financial regulator that made some progress in that area.)