The US financial landscape just witnessed a seismic shift: federal regulators have rescinded crucial guidelines designed to help banks manage climate-related risks. This decision raises eyebrows and concerns—could politics be overriding science and sound risk management?

In a joint statement, the US Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency announced the withdrawal of a framework initially established to guide large financial institutions in navigating climate-related financial risks. These principles, unveiled just last year in 2023, were meant to ensure banks remained resilient amid the growing threat of climate change.

“All supervised institutions are expected to consider and appropriately address all material financial risks and should be resilient to a range of risks, including emerging risks,” the regulators stated. But critics argue that this move is not just about risk assessment; it’s about political agendas, particularly as this decision aligns with a broader trend since President Donald Trump’s second term that seems to downplay climate issues.

When the guidelines were first rolled out, Fed Chair Jerome Powell emphasized the importance of banks understanding and managing their material risks, including the financial risks stemming from climate change. However, Powell has since claimed that the Fed is not a “climate policymaker,” reducing the responsibility of the central bank when it comes to environmental issues.

The withdrawal of these guidelines garnered mixed reactions, with five out of seven Fed board members approving this controversial decision. Governor Michael Barr, who opposed the withdrawal, expressed grave concerns, stating that the decision “defies logic and sound risk management practices.” He warned this could lead to a more precarious financial system as climate-related risks continue to grow.

Critics like Elyse Schupak from Public Citizen branded the decision a politically motivated misstep. “The increase in climate disasters and the ongoing insurance crisis mean that regulators should focus on understanding and mitigating financial risks—not backsliding,” she insists.

Moreover, Jessye Waxman from the Sierra Club highlighted the stark reality: economists have warned that the financial repercussions from climate change could rival the Great Depression in severity. She pointed out that while the Fed adopted these guidelines two years ago, the situation has only worsened, indicating that this shift is less about risk management and more about changing political tides.