NCUA Board Member Rodney E. Hood Statement on the Request for Information and Comment, Climate-Related Financial Risk

April 2023
NCUA Board Member Rodney E. Hood Statement on the Request for Information and Comment, Climate-Related Financial Risk
Rodney E. Hood

NCUA Board Member Rodney E. Hood speaks during a meeting of the NCUA Board.

As Prepared for Delivery on April 20, 2023

As of now, my view is that credit unions know best how to manage and mitigate this risk in their respective communities and not the NCUA.

The RFI before us today does not change any NCUA policy or supervision for climate change. Changing policy will require a future Board action. However, nothing that I will say today should constrain me or, frankly, lock me into a position, one way or another, for future action regarding climate change. I’m indeed open to studying this issue more and would like to see the best public policy prevail. When it comes to a future specific action, I would like to see this Board adjust the loan maturities for solar loans to 25 years. Current regulations make it hard for credit unions to compete in this market because of our existing regulations that limit the maturity for solar loans to 15 years, generally speaking.

As many of you know, North Carolina is the state where I grew up and that I still call home. It’s also where I began my professional career some years ago, first in commercial banking and then as a Community Reinvestment Act manager at a financial institution. Much of my work then focused on affordable housing and small business lending and included substantial outreach to marginalized and underserved communities.

I don’t think anyone called it “stakeholder capitalism” back then, but that’s essentially what it was. We were focused on sustainability and impact, issues that are at the center of our discussion today. So, you could say I’ve been intensely involved, in one way or another, in the world of stakeholder capitalism from the start of my career. From that standpoint, I have watched as these ideas have spread more widely within the larger business world. I continue to be a strong supporter of the key tenets of stakeholder capitalism — – including diversity, equity, and inclusion initiatives and ESG goals — and I continue to make the case for these practices because I believe they’re the right thing to do and I believe they’re good for business and society.

But in my position as a financial services industry regulator, I prefer the “go slow” approach, and I’ve sought to encourage these practices without being heavy-handed about it. For instance, when it comes to ESG regulations for credit unions, including climate change, I’m cautious about stepping in with regulatory solutions and certainly I am not comfortable with suggestions that regulators should be forcing a commitment to the ESG framework at this moment in time.

One could even argue that ESG regulation is not urgent at this stage for the system of federally insured credit unions we oversee. We’re talking here about smaller, non-profit, membership-driven financial institutions with a strong community orientation. As such, their ESG impact simply doesn’t compare to publicly traded firms on a national or international scale.

So, for example, late last year the NCUA approved a charter to establish a new credit union in Lame Deer, Montana, that will provide financial services to a largely Native American population. A credit union in Lame Deer, Montana, is not going to have the same concerns as a systemically important global financial institution. So, the regulatory needs are very different for this industry.

It’s also why I don’t get overly exercised about criticisms of ESG and stakeholder capitalism. The reality is that if these concepts are going to be effective and win wider acceptance, then they must be subjected to critical evaluation and testing. I recently spoke at an event that highlighted the “promise and peril” of stakeholder capitalism. That gets it exactly right – we need to be looking at these frameworks carefully to assess both their strengths and weaknesses, assessing them on their results and not just on their stated good intentions.

I do have a question: Regarding similar RFIs released by the other financial regulatory agencies - what have those agencies done as a result of the responses they received to their RFIs? Have they issued any new guidance or regulations?

Thank you. I have no further questions or comments.

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