In October 2021, the Financial Stability Oversight Council (FSOC) published its inaugural Report on Climate-Related Financial Risk making over 30 recommendations to U.S. state and federal financial regulators on how best to identify and address climate-related risks to the financial system. At that time, FSOC formed a new staff-level interagency committee, the Climate-related Financial Risk Committee (CFRC). At last week’s FSOC meeting, CFRC members reported their progress and released a Fact Sheet emphasizing interagency coordination and capacity building, in particular emphasizing data and methodological gaps. FSOC members reported on international and interagency cooperation prioritizing data collection and harmonization of reporting methodology. For instance, in March the Securities and Exchange Commission (SEC) proposed rules to enhance and standardize climate-related disclosures for investors, in May the SEC proposed enhanced environmental, social, and governance (ESG) disclosures, in June the Commodity Futures Trading Commission (CFTC) published a request for information on all aspects of climate-related financial risk related to derivatives markets underlying commodities markets, and this coming fall the Federal Insurance Office (FIO) will provide an analysis of existing climate-related disclosure requirements for insurers.
As part of their efforts the FSOC agencies are stressing the importance of climate-related scenario analysis to evaluate the potential economic and financial risks posed by different potential climate outcomes. For instance, scenario analyses are part of the CFTC RFI reported above, as well as recent proposed principles by both the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Supporting the scenario analysis effort is a new pilot program announced by the Office of Financial Research (OFR) in cooperation with the Federal Reserve Board of Governors and the Federal Reserve Bank of New York. OFR’s Climate Data and Analytics Hub helps meet data and methodological gaps by allowing FSOC agencies to integrate wildfire, crop condition, precipitation, and other climate-related date with financial data. The Hub as it is being called is also equipped with statistical and visualization applications that will assist regulators’ analytical and coordination efforts.
As the member agencies move forward with their proposals, RFIs, etc., additional scenario analysis reporting requirements on industry participants are likely to follow.
For a summary of the March 2022 SEC reporting requirements, see SEC and the NAIC Propose Significant New Climate Reporting Requirements and NAIC Adopts New Climate Risk Disclosure Standard.