FSOC Identifies Climate Change as Emerging Threat to Financial Stability
In a report on climate-related financial risk, the Financial Stability Oversight Council ("FSOC") identified climate change as an emerging and increasing threat to U.S. financial stability. Treasury stated that the report was issued in response to Executive Order 14030 ("Climate-Related Financial Risk").
In the report, FSOC emphasized the need to coordinate among agencies and made over 30 recommendations to its members, including, among others, that they:
build their capacity to address climate-related financial risks through (i) increased internal expertise and (ii) understanding adverse impacts on financially vulnerable populations;
address climate-related data gaps, develop consistent data standards and engage in climate-related data sharing with other members;
enhance public climate-related disclosure, standardize data formats to facilitate comparability and specifically consider disclosure of greenhouse gas emissions; and
collaborate with external experts, use scenario analysis to assess climate-related financial risks and coordinate with international counterparts.
FSOC also issued a fact sheet on its response to climate-related financial risk which summarizes actions already taken by its members, including the SEC, Federal Reserve Board ("FRB"), the CTFC and the OCC.
SEC Chair Gary Gensler highlighted that the SEC is looking into (i) climate risk disclosure for public companies and (ii) updating the naming rules for funds that market themselves as "green" or "sustainable."
FRB Chair Jerome H. Powell reported that the FRB is developing a program of scenario analysis as recommended by the report, stating that the FRB will "address climate-related risks in an analytically rigorous, transparent, and collaborative way."
Treasury Secretary Janet L. Yellen stressed that this report is only the first step in addressing this "urgent priority."
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