Managing Climate Risk in the U.S. Financial System: U.S. Commodity Futures Trading Commission Report

The United States Commodity Futures Trading Commission (“CFTC”) issued a report entitled:

Managing Climate Risk in the U.S. Financial System (“Report”)

The Report was prepared by the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the CFTC.

The Report notes that while it has been presented to the CFTC that its conclusions and recommendations are also relevant to:

• Other federal and state financial regulators
• Federal and state lawmakers
• Leaders in finance and business
• General public

The Report’s objective is described as analyzing:

… the existing and emerging risk that climate change poses to the soundness and stability of the U.S. financial system, and offer recommendations.

Considered in the Report are climate change impacts such as:

• Sea-level rise
• Extreme weather events
• Rise in temperatures

The Report also takes into account the risk posed to the United States financial system by shifts in policy, technology and consumer preferences.

The Report was prepared by representatives from:

• Financial services
• Energy
• Agricultural industries
• Think tanks
• Civil society organizations from the environmental community

Overarching conclusions of the Report include:

• Climate change poses a major risk to the stability of the United States financial system and to its ability to sustain the American economy
• This reality poses complex risks in the U.S. financial system
• A major concern for regulators is what we don’t know
• U.S. financial regulators must recognize that climate change poses a serious emergency risk to the U.S. financial system
• U.S. financial regulators should move urgently and decisively to measure, understand, and address climate risk
• The financial community should not be simply reactive – it should provide solutions

Chapter topics include:

• Introduction to Finance in the Face of Climate Change
• Physical and Transition Risks in the Context of the United States
• Implications of Climate Change for the U.S. financial system
• Existing Authorities and Recommendations for Financial Regulators
• A Closer Look at climate Risk Management and Data
• A Closer Look at Climate Scenarios
• A Closer Look at Climate Risk Disclosure
• A Closer Look at Financing the Net-Zero Transition

Key recommendations are provided in the Report.

A copy of the Report can be downloaded here.