TALLAHASSEE, Fla.– The League of Southeastern Credit Unions, which noted “climate change will uniquely affect” the 311 CUs it represents across three states, has filed a comment letter on NCUA’s climate change proposal in which it is urging the agency to take action.
It is a view that contrasts with that of two national CU trade associations, which are encouraging NCUA to limit any climate-related activities.
“When the (NCUA) posted this Request for Information (“RFI”), we knew that we needed to be part of this conversation,” LSCU said in its comment letter. “All three of our states are at risk of ever-increasing flooding, devastating tornadoes and more powerful tropical storms. Florida, in particular, must contend with rising sea levels threatening most of its inhabitants. We support the NCUA in taking proactive steps to understand the risk that climate change will pose to the credit union system.”
The LSCU letter cited numerous direct and indirect physical risks to credit unions from climate change affecting various aspects of credit union operations, member portfolios, and long-term planning strategies, including floods, hurricanes, tornadoes, and wildfires and more that can affect branches, offices, ATMs, and data centers.
Additional climate-related risks include employees unable to travel to work, disruptions to vendors and service providers and the entire supply chain.
Not So Sunny Risks
Most of Florida is especially at risk from the affects from climate change, including not just credit unions but member properties, the letter continues.
“These properties form the collateral for many of the loans provided by credit unions,” the letter cautions. “If these properties become damaged, their value may decrease, potentially leading to increased default rates and lower recovery values for defaulted loans. Moreover, insurance costs for these properties could also rise, putting further financial pressure on borrowers. With the large proportion of Florida's population living near the coast, there is an increased risk that members of the credit unions may face significant hardships due to climate events. These hardships could result in members defaulting on loans or withdrawing their savings to cover unforeseen expenses, both of which can have a direct impact on a credit union's balance sheet.”
Florida's economy is also heavily reliant on industries that are vulnerable to climate change, such as agriculture and tourism, the letter adds, pointing to the risks to commercial loans in the sectors.
The letter goes on to provide significant additional detail around many of those risks.
Suggested Strategies Outlined
“To safeguard vulnerable communities against the escalating risks posed by climate change, the NCUA and the credit union industry can effectively partner to implement several key strategies,” the League of Southeastern Credit Unions wrote.
Those strategies include, according to LSCU:
- Establishing risk-informed lending practices. The league said these would involve integrating climate risk assessments into loan underwriting processes. “This approach would allow for consideration of a borrower's climate-related physical risks, as well as offering loan products specifically designed to assist borrowers in mitigating these risks.”
- Member education. “By providing accessible information about the financial implications of climate risks and advocating for policies that ensure protection for vulnerable populations, they can facilitate a more informed and resilient membership.”
- Partnerships with local governments and non-profit organizations. Those partnerships could bolster community resilience, the letter states, noting such collaborations could potentially involve funding and supporting initiatives aimed at helping community members prepare for, and recover from, climate-induced disasters.
- Promoting green initiatives. These could include offering specialized loan products and incentives for energy-efficient homes and vehicles, as well as renewable energy installations, can empower members to reduce their individual carbon footprints and achieve long-term savings. Through these concerted efforts, the NCUA and credit unions can jointly contribute to the climate resilience of the communities they serve.
The letter also highlighted transition risks, governance issues, business strategies, risk management, climate-related opportunities, and more.
‘NCUA Can Play Key Role’
“LSCU believes that the NCUA can play a key role in helping credit unions to become more resilient to climate change by providing guidance on how to assess and manage climate-related risks, developing standards for climate-related disclosures, and encouraging credit unions to invest in green initiatives,” the letter concludes. “LSCU believes that by taking these steps, the NCUA can help to ensure that credit unions remain strong and vibrant in the face of climate change.”
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