New York report includes warning of risks associated with transitioning away from fossil fuels
The guidance warned of economic behavior shifts and investor preferences
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A new report from New York’s Department of Financial Services wants banks and independent mortgage companies to consider not only the dangers of climate change but also the economic risks associated with transitioning away from fossil fuels.
The proposed guidance, issued Wednesday, warns that risks will arise from economic and behavioral shifts driven by policy and regulations, adoption of new technologies, consumer and investor preferences and liability risks.
FILE: The sun sets on the skyline of midtown Manhattan, the Empire State Building and Hudson Yards in New York City on December 17, 2022, as seen from Jersey City, New Jersey. (Gary Hershorn/Getty Images / Getty Images)
Because of the potential for issues associated with this transition, the report says, the Financial Stability Oversight Council recognizes "that a disorderly climate-driven economic transition increases risk to financial stability."
These transition risks, the report notes, can be either direct or indirect impacts on the financial system. For instance, assets could turn out to be worth less than originally modeled because of changes affecting certain sectors.
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Costs to reinvest in and replace infrastructure affected by climate-related financial risks may also directly affect regulated organizations. Companies with operations in "discrete" geographic areas may also see declining revenue in response to climate-related financial risk, the report says.
The report suggests that banks conduct regular scenario analyses to evaluate their assets and liabilities. It also warned banks and mortgage companies to avoid a cut in lending or increased credit in minority and low- to moderate-income communities.
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Banks have until March 21 to comment on the proposed climate guidance, Bloomberg Law reports.