Climate Poses Risk To U.S. Financial System: CFTC Backed Report

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This morning, the Commodity Futures Trading Commission released the report “Managing Climate Risk in the U.S. Financial System.”

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This report - the first from the auspices of a financial regulator to look at such risks to the financial system specifically in the context of the United States—was prepared by a subcommittee convened by the CFTC and comprised of diverse stakeholders. These included major banks, asset managers and asset owners and leading firms in agriculture, oil and gas, and financial services, as well as members of the environmental research community. They find, resoundingly, that climate change poses systemic risks to the US financial system.

They also find that existing legislation provides wide-ranging, flexible authority to address these issues now. In a blog, WRI's Leonardo Martinez-Diaz contextualizes this development and analyzes a few of the key recommendations, including carbon pricing, stress testing, and emissions disclosures.

The following is a joint statement from Ceres, Environmental Defense Fund, OS-Climate, The Nature Conservancy and World Resources Institute.

“The central message of this report is that U.S. financial regulators must act on the serious emerging risks climate change poses to the U.S. financial system.

Make no mistake: This report merely recognizes what not only we but leading academics, private sector leaders, and peer regulators around the world already know: U.S. financial regulators should move urgently and decisively to measure, understand, and address climate risks.

Left unaddressed, these risks will undermine the financial system’s capacity to serve and support America’s economy. What is needed now is action from financial regulators, who under existing legislation already possess wide-ranging, flexible authority to address climate-related financial risk.

Later will be too late.”

Climate Change Poses Serious Risks To The U.S. Financial System

The following are quotes from individuals from these organizations: 

World Resources Institute Sustainable Finance Center Global Director Leonardo Martinez-Diaz:

“The United States has lagged behind other countries in protecting our financial system from climate change. It has also lagged in mobilizing the financial system to help fight climate change in the first place. This report can help put the United States back on the right track.

The report provides, for the first time, a detailed assessment of how climate change can affect the U.S. financial system. It also identifies what regulators and the private sector can do to be part of the solution. Importantly, the challenge is not just about shielding assets and avoiding risk—it’s also about how the U.S. financial system, which remains the largest and most dynamic in the world, can help finance the transition to a net-zero-emissions, climate-resilient economy.”

Ceres CEO and President Mindy Lubber

“If it wasn’t clear before, it should be crystal clear now. Climate change is a systemic risk to our economy and financial system, and our regulators have a critical role to play in protecting us from those risks. For such a politically and sectorally diverse group to issue such a strong call for regulatory action is testament to just how serious a systemic financial threat climate change poses to U.S capital markets, and how concerned stakeholders from across the political spectrum are about it. Ceres is committed to driving and accelerating transformative change within U.S. financial regulatory agencies through the Ceres Accelerator for Sustainable Capital Markets, and we look forward to working with the CFTC and other agencies to make sure they quickly implement these bold recommendations and protect our capital markets from the systemic threats of climate change.”

Environmental Defense Fund Senior Vice President for Climate Nathaniel Keohane: 

“This report sends a resounding message to Wall Street and Main Street: unchecked climate change threatens the stability of our financial system. This threat matters for the millions of consumers, businesses, and farmers across the U.S. economy who depend on a stable financial system.

“Communities around the U.S. are already seeing the devastating impacts of climate change on their livelihoods, in the form of wildfires, hurricanes, floods, and more. This report shows clearly how these impacts pose risks to the financial system in every sector of our economy. Financial regulators have an urgent responsibility to address and manage climate risk, and this report offers a comprehensive set of recommendations outlining how they can act now.

“Financial regulators who ignore climate change do so at their own peril. In addition to the climate threats we do know, this report underscores the dangers of what we don’t know. Climate change could cause a range of potential damaging scenarios, but we don’t know when or how they could occur. That’s why regulators must put in place strong rules and guidance to mandate full and transparent disclosure of climate risk. Regulators should also help companies develop the data and tools they need to provide the information that their clients are demanding – and that the public deserves.”

OS-Climate CEO Truman Semans:

“This report urges rapid, sweeping action by regulators, financial firms, and companies to manage the systemic risk that climate change poses to the U.S. financial system. This systemic risk can be reduced by rapidly increasing capital flows to opportunities in the transition to a low carbon, resilient economy. The report makes it clear that more accurate, publicly available climate-related data about companies and financial institutions is crucially needed for this to happen. We welcome the report’s recommendation that regulators and financial institutions support open source platforms. The OS-Climate Platform of the Linux Foundation is dedicated to providing a global public infrastructure of data and analysis at service to regulators, banks, asset owners, asset managers, and companies for risk management, better scenario analysis, and scaling up climate-aligned financing and investment.”

The Nature Conservancy CEO Jennifer Morris:

“This report makes clear that climate change poses serious risks to the U.S. financial system.”

“It outlines substantive, comprehensive steps that financial regulators, policy-makers, and financial institutions can and should take in order to address climate-related risks to our financial system. Until financial markets begin to account for the risks related to climate change, capital will continue to flow in the wrong direction – in ways that contribute to, rather than reduce, the effects of climate change. We have an opportunity to make smart investments now to address climate change, create jobs, and bolster the U.S. economy.”