Seven days in May might have revealed the depth of the divide between regulators and banks on efforts to counter the advance of climate change. 

The Bank of England warned that banks and insurers could face higher capital requirements and see a 10% to 15% dip in annual profits if they don’t prioritize managing climate risks.

Across the pond, the Securities and Exchange Commission (SEC) voted to issue two proposals. One would expand the two-decade-old “names rule” to encompass ESG funds — such that a fund must invest at least 80% of its holdings in certain industries or investment types to give itself labels such as “ESG,” “sustainable” and “low-carbon.”

The second would require funds that consider ESG in their investment processes to disclose how they measure progress toward that goal. 

“What we’re trying to address is truth in advertising,” SEC Chair Gary Gensler said, according to The Wall Street Journal.

Hester Peirce, the SEC’s sole Republican, voted against both proposals, saying they would impose undue burdens on asset managers.

The SEC will take public comments on the measures for 60 days.

The move comes as the SEC begins to crack down in earnest on “greenwashing,” the exaggeration of efforts to limit harm done to the environment. The regulator two days earlier imposed a first-of-its-kind penalty on a BNY Mellon subsidiary — a $1.5 million fine for misstating in prospectuses that its mutual funds received ESG quality reviews when that wasn’t always the case.

'Hyperbole' one-upmanship

And yet, the most lasting narrative of the past few days with regard to banks’ ESG concerns may be comments the global head of responsible lending for HSBC’s asset-management division made at a conference May 19.

On climate change’s effect, HSBC’s Stuart Kirk said, “You’ve got to out-hyperbole the next guy, but I feel like it’s getting a little bit out of hand." 

“The constant reminder that we are doomed. The constant reminder that within decades, it’s all over,” he told attendees. “[A previous presenter at the conference] said we’re not going to survive, and indeed no one ran from the room. In fact, most of you barely looked up from your mobile phones at the prospect of non-survival.”

In his presentation, Kirk noted that as media reports more frequently characterize climate change as catastrophic, the price of risk assets climbs. He suggested that either climate risk is negligible, that climate risk is already accounted into price, or that central bankers must demonstrate that everyone in finance is underestimating climate risk.

“What bothers me … is the amount of work [regulators] make me do” to account for climate risk, Kirk said Thursday. “I work at a bank that’s being attacked by crypto. … We’ve got the China problem, we’ve got a housing crisis looming, we’ve got interest rates going up, we’ve got inflation coming down the pipes and I’m being told to spend time and time again looking at something that’s going to happen in 20 or 30 years hence. The proportionality is completely out of whack.”

The average loan length is six years, Kirk noted, asserting that whatever happens in Year 7 is irrelevant to the loan book.

Blowback

HSBC has suspended Kirk, the Financial Times reported. And executives at the British bank took to social media to decry his presentation. The title of Kirk’s presentation — “Why investors need not worry about climate risk” — had been agreed upon two months earlier, according to the outlet.

“I do not agree – at all” with Kirk’s comments, HSBC CEO Noel Quinn wrote on LinkedIn, calling the presentation “inconsistent” with the bank’s strategy. 

“I hope my colleagues, customers and others will all know, from our work and my public comments, that HSBC is absolutely committed to a net zero future,” Quinn wrote. “Given our global reach and capabilities we have an obligation to lead.”

Nuno Matos, head of HSBC’s wealth and personal banking business, likewise posted “in complete agreement” with Quinn’s stance.

Blowback against Kirk’s comments isn’t limited to inside HSBC. 

“He represents yesterday’s bank executive,” Paul Clements-Hunt told Bloomberg. Clements-Hunt helped coin the acronym ESG in the mid-2000s.

“Flippant, off-the-cuff remarks don’t do any favors,” another executive told the Financial Times.

However, Hendrik du Toit, CEO at asset manager Ninety One, told the Financial Times that Kirk’s remarks have “given us all food for thought and encouraged healthy debate around the biggest existential topic of our time,” adding, “it doesn’t change the fact that we need to address” climate change.

Sasja Beslik, a veteran of sustainability units at ABN Amro Asset Management and Nordea Asset Management, told Bloomberg that Kirk was “expressing what many bankers think when the media isn’t around.”

Public face vs. inside voice

Kirk noted central banks have argued the effect of climate change will take 2.5% to 5% away from gross domestic product 80 years from now. 

“What they fail to tell everyone else … is that by the year 2100 … the world is going to be between 500% and 1,000% richer,” Kirk said. “You lop 5% off that in 2100, who cares? You will never notice.”

By Kirk’s logic, the $1.5 million penalty the SEC handed BNY Mellon would not, on its own, serve as a motivator for the bank to stay on the right side of climate regulation — nor justify “the amount of work” involved. (BNY Mellon Investment Adviser, the unit affected by the fine, held more than $380 billion in assets as of March, according to the Financial Times.)

Right-of-center views like Kirk's aren't the only ones on ESG to take fire. Lawmakers in the U.S. Senate derailed Sarah Bloom Raskin's nomination to serve on the board of the Federal Reserve in March over concerns that her personal opinion on policies allowing oil, gas and coal companies to take government-backed emergency relief would bleed into central bank policy.

For those fears to be founded and for Kirk’s comments to be justified, regulators may need to stiffen their penalties. 

Meanwhile, the banking sphere may have to reconcile its public-facing embrace of ESG policy with the inside voice that Kirk’s comments let out.

“I welcome a contrarian view as sometimes the ESG market is overly one way,” Desiree Fixler, a former head of sustainability at DWS, told the Financial Times. “We’re living in a world where ESG executives are paid on PR statements and aspirations rather than on actual impactful results.”

Shareholders at Citi, Wells Fargo and Bank of America voted down climate change proposals at their respective annual general meetings in late April.

Citi’s proposal, which would have limited the bank from lending and underwriting new oil and gas projects, garnered 12.8% of the vote. Similar proposals at Wells Fargo and Bank of America each received 11% of shareholder support.

Similar measures will be up for a vote in the coming weeks at three more of the nation’s top financial institutions: JPMorgan Chase, Goldman Sachs and Morgan Stanley.

Shareholder votes are nonbinding but may herald coming change, given enough support. A shareholder proposal in 2021 that would have forced Goldman to publish a report on how mandatory arbitration affects its staff and workplace narrowly failed, with 49% backing, and the bank rejected it. But Goldman reversed course in June, agreeing to review the issue.

Likewise, Citi agreed in October to undergo a racial audit, months after a shareholder proposal on the matter garnered 38% support.

April's shareholder proposals come as the banking industry has seen a record number of climate-focused petitions aiming to pare lending to the fossil-fuel industry, according to Politico. The boost in climate proposals follows the Securities and Exchange Commission’s decision in December to broaden the types of issues that shareholders are allowed to raise at annual meetings.

The climate change resolutions were submitted by the Sierra Club Foundation at Wells Fargo, Harrington Investments at Citi and Trillium Asset Management at Bank of America.

Harrington and Boston Common Asset Management, in a supporting statement in Citi's proxy filing, said “a change in policy is needed” to “close the gap between [Citi’s] words and actions” regarding climate change.

Citi CEO Jane Fraser told shareholders it’s “not feasible for the global economy or for human health or livelihoods to shut down the fossil-fuel economy overnight.”

“The transition needs to be accelerated, but it also needs to be managed to minimize the shock to our economy and our communities,” she said, according to Bloomberg.

At Bank of America, CEO Brian Moynihan was asked if he would commit to ending the bank's relationships with fossil-fuel companies that won't adopt policies to limit warming to 1.5 degrees Celsius above pre-industrial levels by roughly 2050.

“We will work with our clients to help make that transition take place, but at the end of the day it is their transition,” Moynihan replied, according to American Banker and the Financial Times.

Likewise, Charlie Scharf, Wells Fargo's CEO, said his bank is “focused on helping our customers as they transition to a low-carbon future,” adding that many are “investing significantly in the development of technologies and decarbonization strategies.”

The bank asserted the Sierra Club's proposal was not “reasonable based on current energy usage,” adding that it wanted to ensure “ongoing participation in financing the new capabilities and resources Oil & Gas companies will need for the future.”

“We’ve favored engagement over divestment,” Scharf said, according to American Banker.

However, Loren Blackford, who leads the Sierra Club's investment committee, countered that the nonprofit isn't asking for divestment — just a strategy that aligns with Wells Fargo's pledge to reach net-zero financed emissions by at least 2050.

Citi, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America, as part of their membership in the Net-Zero Banking Alliance, have made the same commitment.

Fossil-fuel financing from the world’s 60 largest banks reached $4.6 trillion in the six years following the adoption of the 2015 Paris agreement, including $742 billion in 2021 alone, according to a report by the Rainforest Action Network. 

JPMorgan Chase, Citi, Wells Fargo and Bank of America accounted for 25% of all fossil-fuel financing identified over the past six years, according to the report.

Agility Bank, a digitally focused women-owned and women-run commercial community bank, is set to officially open in May, after receiving approval from the Office of the Comptroller of the Currency (OCC) to operate as a minority depository institution (MDI), the Houston-based bank announced. 

Agility’s journey to operate as a nationally chartered institution was two years in the making. The de novo filed paperwork with the FDIC in April 2020, with initial plans to open by the end of that year. But the pandemic altered the bank’s opening timeline, said Lauren Sparks, Agility’s founder, president and CEO.

“The regulators in particular weren't quite sure about moving forward with a new bank,” Sparks said. “And so we had to really shock our plans and make them much more geared toward a very low-growth environment.”

The bank received conditional approval from the OCC and the Federal Deposit Insurance Corp. (FDIC) last year, but faced additional challenges hitting its $30 million capital raise requirement. 

“It was a very difficult time during the pandemic to speak to people about financial matters and help them understand that there was still a great business opportunity on the other side of all of that,” Sparks said. “We were able to keep talking about all the great business opportunities that we knew were ahead, but not everybody had the same frame of reference when we were speaking to them about investment.”

The bank has since overcome its fundraising hurdle and will open with $35 million in capital, surpassing its $30 million requirement. 

Agility’s mission is to promote financial parity for women and boasts a diverse leadership structure — a requirement of MDIs.

Agility’s board is 75% minority, and 54% of its ownership is minority.

“That was another hurdle,” Sparks said of the ownership requirement to receive MDI status. “More than 51% of our shareholders needed to be female, and it's not a conversation that most female investors have had, in terms of investing in a bank. ... But at the end of the day we ended up with a really great grassroots shareholder base.”

The bank’s ownership structure also leans local. More than 85% of Agility's shareholders are Houstonians.

Sparks said she views the Houston market as a great opportunity for a de novo like Agility. 

She told Banking Dive in 2020 the city is in need of fresh bank entrants, adding the area has seen a number of its community banks scooped up by larger firms after Hurricane Harvey hit in 2017.

Even in the midst of the pandemic, the market has performed well, Sparks said.

“There's still growth, there's still new businesses, and there's still existing businesses expanding,” she said. “There are people moving here every day. And our growth projections for Texas and for Houston continue to be very exciting for us as a new bank in the market.”

Sparks said Agility is only the second de novo since 2008 to open in the Houston area.

“I'm sure there'll be some behind us,” she said. “It's just a great place to be. If you want to be a de novo bank, you want to be in Texas, and you especially want to be in Houston.”

The bank claims it is the first MDI established with the purpose of supporting women, as well as all small and midsize business owners. 

“We started from the very beginning saying we want to be a women-owned, women-led bank because that sets the tone and provides a perspective for who we are,” Sparks said. “There's obviously a need for women to be at the table in all major parts of business and finance. Being at the table in terms of finance and access to capital is really the great equalizer. And it has to happen somewhere. I'm actually excited that it happened in the middle of the country and in Texas, where people sometimes think of it as a more conservative environment. But there's a need to be doing good business with men and women, and we're setting the precedent."

A former Citi and Barclays executive is partnering with a fintech entrepreneur to launch a neobank aimed at providing banking services to individuals impacted by incarceration. 

Yasaman Hadjibashi and Keith Armstrong are the husband and wife team behind the Dallas-based startup Stretch.

“Our goal is to help people stretch their earning potential, but our mission is to help anyone who's been impacted by incarceration to make and manage money,” said Hadjibashi, who spent 10 years working in consumer banking at Barclays and Citi before making the switch to fintech entrepreneur.

Hadjibashi said she and Armstrong always had a desire to start a company that would have a positive impact on society.

Hadjibashi met Armstrong through a Techstars program in South Africa. Armstrong brings a fintech background to Stretch, having founded Abe.AI, a conversational AI platform that was acquired by Envestnet Yodlee in 2019.

“One key theme we’ve always focused on — he as a fintech entrepreneur, and me as a corporate intrapreneur at two large banks — has always been the lack of attention on helping people make more money rather than just what happens once you get that paycheck and bring it to a bank,” Hadjibashi said. “If you're not making enough money in the world, then throwing another credit product at you, or allowing you to access your paycheck two days in advance is just not the solution to your root cause.”

Through Stretch, Hadjibashi and Armstrong are zeroing in on the specific struggles the formerly incarcerated and their family members face, pain points that are not adequately addressed in the mainstream banking system, Hadjibashi said.

The venture is still in the early stages, Hadjibashi said, adding that Stretch has fewer than 1,000 customers. 

The startup has rolled out the platform to a limited audience through collaborations with several partner organizations, including the Anti-Recidivism Coalition, based in Los Angeles. 

Hadjibashi said she plans to launch the platform to a wider audience by the end of the year.

Through its partnership with Evolve Bank & Trust, the neobank offers a checking account with no minimum balance requirements or monthly service fees. 

On the surface, Stretch is not unlike other digital banks that tout free services, but what sets the platform apart is its emphasis on helping members land jobs, a hurdle many formerly incarcerated people face upon release, Hadjibashi said.

“It is an emotional drain on individuals when they send dozens and dozens of resumes to employers and they don't know if they hire former convicts or not,” Hadjibashi said.

Stretch’s app is integrated with Honest Jobs, a platform that helps people with conviction histories find jobs faster, she said.

Stretch also allows members to purchase a course with Ed Hennings, an entrepreneur who spent 20 years in prison before launching his own box trucking business. 

“It’s essentially a master class to help people, step by step, learn everything they need to set up their own box trucking business,” she said, adding that interest in box trucking as a career is high among the community Stretch is targeting.

“Box trucking is a specific path that doesn't have high barriers to entry. You don't need a commercial driver's license or startup capital. So we're very excited about having launched that with individuals from the community,” she said. “We want to be their partner, help them transition into entrepreneurship pathways that are associated with strong pay, strong economics and that are recession-proof.”

In addition to helping the formerly incarcerated secure jobs, Stretch also aims to help bring the demographic into the banking fold. 

A 2021 report from the Financial Health Network found that 29% of formerly incarcerated individuals did not have a bank account prior to incarceration. 

That figure is more than three times higher than the average unbanked rate over the past 10 years, according to the report. 

For individuals who had bank accounts prior to incarceration, many have had their accounts closed due to monthly fees or overdraft fees adding up during the time they served, Hadjibashi said.

This can also create a “negative banking history,” causing some banks to reject applications, she added.

Formerly incarcerated individuals may also struggle to show a proof of residency or proof of identity that is accepted by the relevant service provider, Hadjibashi said.

“There are a number of challenges these individuals go through that make it hard to systemically say it's easy to sign up for a bank account,” she said.

Stretch’s current revenue model relies largely on interchange, the fees collected when account holders swipe their debit cards. 

In the future, Hadjibashi said she would like to introduce credit-building products and lending to the platform, and expand its online entrepreneurship classes. 

“If we can help the thousands of individuals and their wider family ecosystems find stability so they can actually go pursue opportunity in life, I think I would be very proud of ourselves and what we've accomplished,” she said.

U.S. Bank announced a $100 billion community benefits plan in May, aimed at winning community activists' support for the lender’s proposed acquisition of MUFG Union Bank.

U.S. Bank CEO Andy Cecere first teased the five-year, $100 billion plan two months ago at a public hearing on the merger.

As part of the plan, U.S. Bank would commit to increase mortgage lending by 20% nationally and 30% to nonwhite and low- to moderate-income (LMI) borrowers in California. Notably, the plan would also require U.S. Bank to analyze demographics and consider community input before closing any branches in an LMI area. 

The Minneapolis-based bank developed its plan in concert with the National Community Reinvestment Coalition (NCRC) and California Reinvestment Coalition (CRC), two community groups that had withheld their support for the merger.

The CRC and 66 partner organizations expressed concern, in a November letter to the Federal Reserve and the Office of the Comptroller of the Currency (OCC), that the proposed merger would harm low-income, rural and minority borrowers, and asked U.S. Bank for a plan to support local investments and avoid branch closures.

The bank finalized the community benefits plan after the hearing and listening sessions with more than 200 community groups, it said. 

“Banks are the economic engines of our communities. As such, we can make meaningful and significant impacts in supporting the ability of low- and moderate-income (LMI) communities and communities of color to access capital and build wealth,” Cecere said in a press release. "Our CBP is outcome-focused and blends the best programs and thinking of U.S. Bank and MUFG Union Bank. We want our actions today to create a ripple effect that will lift future generations.”

Among other efforts in the plan, U.S. Bank pledged to increase lending to small businesses and farms by 15% nationally and 25% in California. The bank also would develop special-purpose credit programs aimed at boosting small-business lending, mortgage lending and the development of affordable housing. About 60% of the plan's commitments would support efforts in California. 

Jesse Van Tol, president and CEO of NCRC, called the plan "a milestone not only because of its overall size but also because of the scale of increases committed for mortgage and small business lending, affordable housing, environmental and social impact lending, and for the plan’s clear focus on racial equity and access to credit directed specifically to communities of color.”

In terms of scope, U.S. Bank's community benefits plan surpasses a similar $88 billion agreement PNC announced when it acquired BBVA’s U.S. footprint last year.

“We appreciate the commitment from U.S. Bank and the personal leadership of Andy Cecere to collaborate with us, CRC and our members to develop the largest ever community benefits plan,” Van Tol said. 

Even with the backing of community groups, though, the deal needs sign-off from regulators. When the acquisition was announced in September, U.S. Bank and MUFG Union Bank estimated the deal would close in the first half of 2022. However, U.S. Bank said in a regulatory filing last week that time frame is "uncertain," according to American Banker.

The Biden administration ordered the Justice Department, Fed, OCC and Federal Deposit Insurance Corp. (FDIC) in July 2021 to update guidelines to “provide more robust scrutiny” in bank mergers.

Senate Republicans in May called for the chamber to end its contractual relationship with Citi, expressing “deep concern” over the bank’s March announcement that it will cover travel expenses for employees seeking abortions. 

In a letter addressed to Karen Gibson, the Senate’s sergeant-at-arms, 10 Republican senators referred to the New York City-based bank’s policy as “abortion tourism,” which they said enables employees living in states with abortion restrictions to circumvent state laws.

The letter comes as House Republicans, also responding to Citi’s policy, made similar demands in April.

“Consistent with nearly five decades of Federal policy against using taxpayer dollars to pay for abortions, taxpayer dollars used by the U.S. Senate should not be administered through a company that facilitates abortion on demand and promotes a woke, pro-abortion agenda,” the senators, led by Steve Daines R-MT, wrote in the letter. “Accordingly, we ask that you immediately terminate the U.S. Senate’s existing contracts with Citi and refrain from entering into any new contractual agreements with Citi.”

Other GOP lawmakers calling for an end to the chamber’s contract with Citi include Sens. Ted Cruz of Texas, Marco Rubio of Florida, Kevin Cramer of North Dakota, James Lankford of Oklahoma, Roger Wicker of Mississippi, Rick Scott of Florida, Mike Braun of Indiana, Cindy Hyde-Smith of Mississippi and Roger Marshall of Kansas.

The office of the sergeant-at-arms provides Citi credit cards to members of the U.S. Senate and its leadership and committee offices to pay for air travel, office supplies and other goods, the senators wrote. 

“Citi’s decision to finance abortion tourism for its employees, in brazen circumvention of State law, shows a reckless disregard for the lives of preborn children and disdain for the will of the people of the States in which Citi acts as an employer,” the senators wrote. 

Citi CEO Jane Fraser addressed the issue at the bank's annual general meeting in April. The bank received 13 questions related to the travel policy. 

One investor calling the policy a “gross misuse of funds,” while another praised the bank for including the benefit in its healthcare plan.

Fraser said the bank’s decision to cover travel costs for abortion is not a political statement, but a long-standing company policy. 

“We know this is a subject that people feel passionate about," she said. "This benefit isn’t intended to be a statement about a very sensitive issue. What we did here was follow our past practices. We’ve covered reproductive health-care benefits for over 20 years, and our practice has also been to make sure our employees have the same health coverage no matter where in the U.S. they live.” 

Fraser said the bank respects everyone’s views regarding abortion.

New York City officials vowed, in an April letter to Wells Fargo CEO Charlie Scharf, not to open any new depository accounts with the bank after a Bloomberg analysis last month found that it approved less than half of refinance applications from Black homeowners in 2020 but 72% from white borrowers. 

“These disparate mortgage practices, layered upon a checkered history of steering homeowners of color into subprime mortgages, rejecting mortgages in redlined neighborhoods, and numerous outstanding consent decrees pertaining to mortgage practices, require a swift response by both your bank and stakeholders,” Mayor Eric Adams and Comptroller Brad Lander wrote to Scharf.

Two Senate Democrats asked the bank in March to provide the data and algorithms it used in 2020 and 2021 to evaluate mortgage refinance applications. Wells Fargo's approval rate for Black homeowners in that category in 2020 (47%) trailed the industry average by 23 percentage points, the senators wrote, citing Consumer Financial Protection Bureau (CFPB) data. Industrywide, lenders accepted 70% of mortgage refinance applications from Black homeowners in 2020, compared with 87% for non-Hispanic whites.

Black homeowners account for more than one-quarter of the primary residents of two-to-four person homes in New York City, the comptroller's office asserted in a press release. 

The city removed Wells Fargo from its designated banking list in 2017 over concerns about the bank’s lending practices, and a Community Reinvestment Act rating of “needs improvement.” But Wells Fargo was re-added to the list in 2021 — following a contested vote — once the bank improved its rating.

Meanwhile, the proportion of mortgage refinancing applications Wells Fargo approved from Black homeowners jumped 11 points in 2021 to 58%. But the bank also accepted a greater percentage of mortgage refinancing applications from white borrowers — 79% in 2021 — meaning that while the lender narrowed the gap by 4 percentage points, a 21-percentage-point difference persists.

New York City has no agency deposit accounts open with Wells Fargo at the moment, according to the press release. 

“It’s outrageous that Wells Fargo has continued to engage in lending discrimination against Black homeowners, even after paying a record settlement for similar actions over a decade ago that contributed to the foreclosure crisis,” New York City Council Speaker Adrienne Adams said in the press release, pointing to the bank’s $175 million settlement in 2012 over allegations that it charged Black and Latino home buyers disproportionately higher fees than their white counterparts.

“These disturbing practices are part of a long legacy and history of discrimination against Black Americans for generations, extracting wealth from our communities that perpetuates the country’s wealth gap," she added. "As a city, we cannot in good conscience ignore this deplorable conduct.”

Wells Fargo released a statement in response to the joint letter, contending that it helped more Black homeowners refinance their mortgages than any other bank in 2020 and 2021.

“Minority home-ownership and access to financing is a significant problem in this country, and Wells Fargo has been and remains committed to being a leader in taking action to help close this and other racial equity gaps,” the bank said. 

The bank is engaged with the city to address the concerns over its lending policies, according to the press release. 

The chair of the city's committee on housing and buildings, however, expressed disappointment with the bank's lending history.

“The disparity between Wells Fargo’s treatment of Black and White mortgage refinance applicants is appalling but unfortunately, unsurprising,” Pierina Sanchez said in Friday's press release. “After a track record of steering homeowners of color into subprime mortgages, rejecting mortgages in redlined neighborhoods, and numerous outstanding consent decrees pertaining to mortgage practices, that Wells Fargo underwriting practices from 2017 to present are still resulting in these racist outcomes shows moral failure in an unwillingness to move forward from America’s racist history of disadvantaging Black homeowners.”

Wells rival JPMorgan Chase, by comparison, approved 87% of Black mortgage refinance applicants and 93% of white ones in 2021, according to the most recent figures analyzed by Bloomberg. 

The Federal Deposit Insurance Corp. (FDIC) unveiled draft principles in March that would provide bank leadership with a framework to manage exposure to financial risks associated with climate change.

The guidance is aimed at financial institutions with more than $100 billion in total consolidated assets, although the FDIC said any size institution may have exposure to climate-related financial risks.   

The agency will field public comments on the proposed principles for 60 days after the document is published in the Federal Register.

"Climate-related financial risks pose a clear and significant risk to the U.S. financial system and, if unmitigated, may pose a near-term threat to safe and sound banking and financial stability," Acting FDIC Director Martin Gruenberg said in a statement. 

The agency’s guidance on climate change comes shortly after Gruenberg, a Democrat, replaced Trump-era Republican appointee Jelena McWilliams at the helm of the regulator.

The FDIC board approved the proposed statement of principles for climate-related credit, liquidity, operational and compliance risk management for large financial institutions. 

The principles seek to provide guidance for the boards of directors and senior management of large financial institutions to create governance frameworks to successfully measure and manage climate-related financial risks. 

The FDIC urges bank management to develop climate-related scenario analysis frameworks to gauge their institutions’ resilience to climate-related physical and transition risks. 

Such frameworks would provide a "forward-looking assessment of the potential impact on an institution of changes in the economy, financial system or the distribution of physical hazards resulting from climate-related risks," the agency said. 

The FDIC is far from the first regulator — nor the first in the banking sphere — to attempt to tackle the risks posed by climate change and the transition to a greener economy. The FDIC's move echoes the climate-risk framework the Office of the Comptroller of the Currency (OCC) laid out in December. 

The Securities and Exchange Commission (SEC) in March proposed that companies include climate-related disclosures — including greenhouse-gas emissions — in registration statements and periodic reports.

"The Federal Reserve is now the only banking regulator that has yet to release guidance related to banks’ climate-related risks," said Todd Philips, director of the Center for American Progress, a liberal think tank. "I encourage [the Fed] to issue similar climate guidance promptly to ensure that all large banks within the United States understand the risks they face from climate change."

The Fed announced in October it was developing scenario analysis to model potential climate change-related financial risks.

A bipartisan group of two dozen senators wrote the majority and minority leaders of both chambers of Congress in May, urging them to include cannabis banking provisions in the final text of the America COMPETES Act.

Nineteen Democrats and five Republicans, led by Sens. Jeff Merkley, D-OR, and Jacky Rosen, D-NV, are asking to keep the Secure and Fair Enforcement (SAFE) Banking Act in the manufacturing and innovation legislation aimed at boosting the U.S.’s competitiveness with China.

(Update: The Conference of State Bank Supervisors (CSBS) later in May urged lawmakers in both the Senate and House to include the SAFE Banking Act in the final version of the America COMPETES Act, as well.)

Lawmakers have tried to fold SAFE Banking into larger pieces of legislation in the past. After failing to gain support as a stand-alone bill, SAFE Banking proponents thought to use the 2022 National Defense Authorization Act (NDAA) as a vehicle to pass the legislation. Cannabis banking provisions were ultimately left out of the text. 

SAFE Banking, introduced in 2013 by Rep. Ed Perlmutter, D-CO, has passed the House six times, most recently as an amendment to the bipartisan competitiveness bill. But the legislation, which has garnered wide support from cannabis industry advocates and banking trade groups, has failed to gain similar approval in the Senate.

Additionally, SAFE Banking appears to be losing its chief advocate come January. Perlmutter has said he won't seek re-election this year. 

“[T]he cannabis industry has become a powerful job creator and a significant generator of tax revenue,” lawmakers wrote in the May letter. “Enacting the SAFE Banking Act via the jobs and competitiveness legislation before us would support a rapidly growing industry that creates jobs, fosters innovation, supports small businesses, and raises revenue in states that have chosen to legalize cannabis, while reducing safety risks to industry employees and the public alike.”

Both chambers of Congress are set to discuss the final bill over the coming weeks.

With the majority of banks hesitant to open accounts for cannabis businesses, the industry operates largely in cash, causing security and operational challenges for the sector. Allowing legal cannabis-related firms to access bank accounts without federal reprisal would address public safety and compliance challenges and help reduce cash-motivated crimes, the lawmakers wrote.

The May letter puts significant Senate support behind SAFE Banking, but the chamber has become a roadblock to the bill’s progress on several occasions. 

SAFE Banking stalled in the Senate in 2019, when the chamber's former Banking Committee chair, Mike Crapo, R-ID, refused to hold a hearing on the bill. 

Democrats, historically, have been more open to cannabis-related bills, but a push for more comprehensive reform stymied efforts to pass SAFE Banking under the current Democratic-controlled Senate.

Before trying to fold SAFE Banking into the 2022 NDAA, House Democrats aimed to include it in two COVID-19 relief bills last year, but the language was not included in the bill President Joe Biden signed in March 2021.

State Street Global Advisors (SSGA) expects all of the companies in which it invests to have at least one woman on its board of directors, it said in a January letter to clients. 

The environmental, social and governance requests of the Boston-based bank’s $3.9 trillion investment arm have become somewhat of an annual event in recent years, with a familiar pattern: The first year heralds a warning. The second year is the business end.

SSGA’s campaign to expand women’s presence on corporate boards dates to 2017. Since then, 862 of the 1,486 companies it identified with previously all-male boards have added one or more women directors, Cyrus Taraporevala, SSGA’s CEO, wrote in the letter.

“While boards have become more gender-diverse, it is clear that this work isn’t yet complete,” Taraporevala wrote.

Companies that don’t meet that standard can expect SSGA to vote against the board leader or chair of the board’s nominating committee, Taraporevala said. In previous proxy seasons, SSGA’s gender request applied to companies listed on major indexes in select countries, he said.

The business end may yet come next year. Starting in 2023, SSGA is asking companies listed on major indexes in the U.S., Canada, Britain, Europe and Australia to have a 30% proportion of women on their boards.

“We expect this change to result in boards with 3 or 4 female directors on average and as many as 3,000-to-4,000 additional female directors across covered indices,” Taraporevala wrote.

SSGA is hardly unique in its push to diversify corporate boards. The Nasdaq exchange, in December 2020, proposed requiring companies to have at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or lesbian, gay, bisexual or transgender. Goldman Sachs, in January of that year, said it would no longer take a company public in the U.S. or Europe if its board is composed of all straight, white men.

Last year, SSGA asked companies to divulge the racial breakdown of their boards, but not necessarily to make changes. The business end, it said, would come in 2022, when the asset manager would begin voting against responsible board members of S&P 500 and FTSE 100-listed companies that don't have at least one person of color on the board.

SSGA reiterated that pledge in January’s letter, adding it would take voting action, too, if those companies don’t disclose their equal employment opportunity reports.

The move builds on a policy SSGA laid out in 2020, in which it said it would vote against board members at big U.S., U.K., French, German, Japanese and Australian companies that lag on ESG standards if they "cannot articulate how they plan to improve" their scores on a homegrown metric the bank calls the "responsibility factor."

State Street’s "R-factor" is based on an ESG disclosure framework established in 2018 by a San Francisco nonprofit, the Sustainability Accounting Standards Board. "We believe a company’s ESG score will soon effectively be as important as its credit rating," Taraporevala wrote in 2020.

SSGA’s 2022 proxy season requests encompass a climate focus, in addition to diversity.

The investment arm said it would vote this year against board directors that represent companies on major indexes in the U.S., Canada, Britain, Europe and Australia who aren’t aligning themselves with disclosures asked for by the Task Force for Climate-related Financial Disclosures.

That includes whether the company discloses board oversight of climate-related risks and opportunities, direct and indirect greenhouse-gas emissions, and targets for reducing them. About one-third of companies in the S&P 500 fall short of that standard, SSGA said, citing Institutional Shareholder Services data.