FSOC Staff Committee Releases Progress Report on Interagency Efforts on Climate-related Financial Risk

The Climate-related Financial Risk Committee (CFRC) of the Financial Stability Oversight Council (FSOC) has published a first staff progress report which outlines ongoing activities, including regulatory ones, as regards the assessment, management, and disclosures of climate-related financial risks of both U.S. businesses and regulatory authorities. The staff progress report follows a first Report on Climate-Related Financial Risk in October 2021 which contained a number of recommendations in these area (please see EventID 12630 in this context for detailed information on the recommendations). The progress report now is primarily addressed at staff members of the U.S. Department of the Treasury, which the FSOC is part of, and outlines the progress made in relation to these recommendations. It thereby highlights the following key actions, among others:
(1) The SEC’s draft on proposed rule amendments to enhance and standardize the climate-related disclosures of public companies:
In April 2022, the U.S. Securities and Exchange Commission published a draft on proposed standardized climate-related disclosures of public companies. The SEC’s key objective is to enhance comparability among ESG disclosures and so to enhance investor protection and understanding. In this context, the SEC seeks disclosures on policies and procedures to identify, manage, and mitigate climate-related risks, disclosures on green-house gas emissions, and disclosures on the impact of severe weather on financial line items, among others (please see EventID 15015 in this context for more information).
(2) The SEC’s draft on proposed ESG-disclosures of registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies:
In June 2022, the U.S. Securities and Exchange Commission published a draft on proposed new ESG-fund labeling and disclosure requirements in an effort to prevent greenwashing and to require investment funds and their advisers to disclose relevant, meaningful, and comparable data to investors. Notable, the „greener“ a fund is, the more detailed the disclosure requirements would have to be (please see EventID 15857 in this context for more information).
(3) The request of the Commodity Futures Trading Commission (CFTC) for information on all aspects of climate-related financial risk (EventID 15968):
In June 2022, the CFTC launched a request for comment on specific risks faced by market participants in the context of climate change, measures to assess and possibly mitigate these risks, and issues surrounding this topic such as disclosures on climate-related financial risks, possible stress tests, financial innovations, the prevention of greenwashing, and much more. The feedback from this request is aimed at informing future policies of the CFTC and possible needed regulatory changes.
(4) Issuance of draft „Principles for Climate-Related Financial Risk Management for Large Financial Institutions“ by U.S. banking regulators:
In 2021 and also in 2022, two U.S. banking regulators, including the Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (FED), have each launched a consultation on such principles. The principles are aimed at assisting large U.S. banks, bank holdings, foreign banking organizations, savings associations, and national banks in their assessment and in their development of prudent risk management policies to mitigate financial risks arising from climate change (please see EventID 13504 and EventID 18690 in this context).
(5) Efforts relating to climate-related data gaps:
As financial institutions, investors, and regulators face challenges in measuring climate-related financial risks due to a lack of necessary data and methodologies, the Financial Stability Oversight Council has prioritized efforts in the area of gathering and analyzing climate-related data. One notable action in this context is the launch of the Climate Data and Analytics Hub pilot program by the Office of Financial Research, offering a collaborative platform for financial regulators. This hub provides access to public climate data, advanced computing tools, and analytical software. It enables the integration of climate data, such as wildfire occurrences and crop conditions, with financial data to better understand the relationship between climate change and financial stability risks. Additionally, the hub facilitates data sharing and collaborative analysis among regulators.