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OCC Proposes ‘Fair Access’ Rule – Potential Implications for ESG Analysis
Monday, November 23, 2020

On Nov. 20, the Office of the Comptroller of the Currency (OCC) proposed a regulation that would allow national banks and federal savings associations to refuse service to fossil fuel companies and other businesses in “politically controversial” industries only if a specific company failed to meet quantitative, risk-based standards established in advance by the covered bank. If finalized, the proposed Fair Access to Financial Services rule could impact financial institutions’ approach to Environmental, Social, and Governance (ESG) ratings and Socially Responsible Investing (SRI).


In June 2020, the Alaska congressional delegation sent a letter to the OCC discussing decisions by several of the nation’s largest banks to stop lending to new oil and gas projects in the Arctic. The letter stated that while the authors believed that the banks’ rationale was politically motivated, the banks had relied on claims of reputational risk to justify their decisions.

In response to this letter, the OCC requested information from several large banks. The responses received indicated that, over the past two years, the banks had decided to cease providing financial services to one or more major industry categories, including coal mining, coal-fired electricity generation, and oil exploration in the Arctic region. The terminated services were not limited to lending, but also advisory and other services unrelated to credit or operational risk. In several instances, the banks indicated that they only intend to make exceptions when certain non-financial benchmarks are met, such as whether the country in which a project is located has committed to the Paris Agreement and whether the project adequately controls carbon emissions.

Key Requirements of the Proposed Rule

The proposed rule would apply to any covered bank with at least $100 billion in total assets with a potential national market share threshold for banks not otherwise covered. A covered bank would need to be able to establish, through a review of its operations and written procedures and policies, that it:

  • Makes each financial service it offers available to all persons in the geographic market served by the covered bank on proportionally equal terms;

  • Does not deny any person a financial service the bank offers except to the extent justified by such person’s quantified and documented failure to meet quantitative, risk-based standards established in advance by the covered bank;

  • Does not deny any person a financial service the bank offers when the effect of the denial is to prevent, limit, or otherwise disadvantage the person from entering or competing in a market or business segment or in such a way that benefits another person or business activity in which the covered bank has a financial interest; and

  • Does not deny, in coordination with others, any person a financial service the covered bank offers.

If Finalized, Possible ESG Implications

ESG and SRI have been of increasing interest to individuals, financial institutions, and corporate clients across industries. However, the current implementation of ESG and SRI is often more qualitative than quantitative, with numerous frameworks, standards, and ratings informing unique company-by-company programs. If finalized, the Fair Access to Financial Services rule could move the financial services industry towards greater standardization.

The proposed rule cites multiple examples of the pressure banks have faced from for-profit and nonprofit sectors in recent years, including pressure to de-bank agribusiness, family planning organizations, manufacturers of firearms, and owners of privately owned correctional facilities. In its proposal, the OCC states that “it is our understanding that in these instances, some banks have refused service based on criteria unrelated to safe and sound banking practices, including: (1) personal beliefs and opinions on matters of substantive policy that are more appropriately the purview of state and Federal legislatures; (2) assessments ungrounded in quantitative, risk-based analysis; and (3) assessments premised on assumptions about future legal or political changes.”

If the rule is finalized, financial services institutions may find themselves searching for frameworks that integrate ESG factors into a valuation model (e.g., ESG Quant) and/or that can be applied across industries (e.g., Equator Principles 4) so as not to be accused of refusing service to an entire industry based on “soft factors” or political or qualitative bases.

What’s Next?

Comments on the proposed rule must be received by Jan. 4, 2021. Of course, with only two months left in the current Administration, it is unclear what the path forward for this rule might be; the timing may raise objections from Democrats. Regardless of the outcome, it may be an ideal time for financial institutions to review their current ESG and SRI policies and procedures and consider whether those policies include a standardized evaluation across industries and integrate ESG factors into quantitative models.

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