The Market Risk Advisory Committee (MRAC), a subcommittee of the Commodity Futures Trading Commission (CFTC) issued a report focusing on the risks posed by climate change to the US financial system, becoming the first US Federal government entity to address this issue. The report, Managing Climate Risk in the U.S. Financial System, concludes that climate change poses a major risk to the stability of the US financial system, and calls on US financial regulators to move urgently and decisively to measure, understand, and address these risks, while noting that financial markets can be aided by regulators to help create and facilitate solutions.
CFTC Commissioner Rostin Behnam said:
“Today would not be possible without the dedication and devotion of the Climate Subcommittee members. They spent tireless hours drafting an incredibly thorough report that has far exceeded expectations. I want to personally thank them for their work on this groundbreaking effort during unprecedented times.
“As we’ve seen in the past few weeks alone, extreme weather events continue to sweep the nation from the severe wildfires of the West to the devastating Midwest derecho and damaging Gulf Coast hurricanes. This trend—which is increasingly becoming our new normal—will likely continue to worsen in frequency and intensity as a result of a changing climate,” Behnam continued. “Beyond their physical devastation and tragic loss of human life and livelihood, escalating weather events also pose significant challenges to our financial system and our ability to sustain long-term economic growth. Now, with this report in hand, policymakers, regulators, and stakeholders can begin the process of taking thoughtful and intentional steps toward building a climate-resilient financial system that prepares our country for the decades to come.”
Some of the key findings and conclusions of the report include:
- Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy;
- Climate risks may also exacerbate financial system vulnerability that have little to do with climate change; including vulnerabilities caused by a pandemic that has stressed balance sheets, strained government budgets, and depleted household wealth;
- U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks;
- Existing statutes already provide U.S. financial regulators with wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk now;
- Regulators can help promote the role of financial markets as providers of solutions to climate-related risks; and
- Financial innovation is required not only to efficiently manage climate risk but also to facilitate the flow of capital to help accelerate the net-zero transition and increase economic opportunity.
MRAC convened in June 2019 to examine climate change-related financial risks. The committee has been joined by over 30 leading investment managers, financial institutions, sustainability-themed initiatives and other institutions.
In a joint statement issued at the release of the report, MRAC committee members JP Morgan Chase, Citi, and Morgan Stanley said:
“We commend Commissioner Behnam for establishing the CFTC’s Climate-Related Market Risk Subcommittee (Climate Subcommittee) and support the overarching goal of advancing efforts to measure, understand and address climate risk. The report prepared by the Climate Subcommittee, Managing Climate Risk in the U.S. Financial System, provides a broad approach to identifying and examining numerous important issues for consideration by relevant policymakers and regulators.”
Sustainability non-profit organization Ceres’ CEO and President, and committee member Mindy Lubber said:
“For a politically and sectorally diverse group of influential members to issue such a strong call for regulatory action is testament to just how important a financial issue climate change is, and to just how urgently we need leadership now. At Ceres, we are committed to driving and accelerating transformative change within U.S. financial regulatory agencies through the Ceres Accelerator for Sustainable Capital Markets. I 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.”