CFTC Commissioner Goldsmith Romero Promotes "Climate Risk Resilience"
Commentary by Steven Lofchie
In remarks to ISDA's ESG Forum on Promoting Market Resilience, CFTC Commissioner Christy Goldsmith Romero described the challenges that derivatives markets may face related to climate change and set forth proposals to address market resiliencies to these risks.
Commissioner Goldsmith Romero stated that climate change poses serious risks and challenges to the commodities and derivatives markets. She restated her proposal for the CFTC to monitor climate-related financial risks and work with exchanges, clearinghouses and market intermediaries to understand their practices in managing these risks.
Commissioner Goldsmith Romero highlighted additional proposals that warrant attention. They include:
- Creating a new category to specifically identify climate-related products. This would allow the CFTC to better understand how derivatives markets manage climate-related risks.
- Approaching climate-related products in the same fashion as digital assets. Use of a similar approach would incorporate (i) consumer education, (ii) enforcement, (iii) market monitoring and (iv) coordination with other federal agencies.
- Conducting consumer education outreach for climate-related products.
- Developing a heightened review framework for self-certified climate-related products. Products included would be those related to carbon credits, where the CFTC could require exchanges to take action to increase the confidence behind carbon emission claims.
- Improving market intelligence to monitor and promote integrity within the markets relating to climate risk.
Commissioner Goldsmith Romero reiterated the "daunting challenge" that climate change poses. She recommended improving market resiliencies, starting with the categorization of climate-related products.
Commentary
Very few derivatives have a term to maturity that is so long that climate change is a material risk embedded in the contract. If the CFTC is looking for materials risks to attend to (although these are also risks as to which it lacks express authority,) perhaps they can turn to regional conflicts and supply chain disruptions.