Financial Stability Oversight Council (FSOC) Releases Factsheet on Climate-Related Financial Risk Efforts
August 1, 2022
On July 28, the Financial Stability Oversight Council (FSOC) received an update on the progress made to identify and address climate-related financial risk. In its October 2021 Report on Climate Related Financial Risk, the FSOC identified climate change as an emerging threat to financial stability and issued over 30 related recommendations to financial regulators. The Factsheet released today describes the progress made to-date, some of which has been described in previous CREFC Policy and Capital Markets Briefings.
Enhancing interagency coordination to support climate-related financial risk monitoring
The FSOC formed a new staff-level committee, the Climate-related Financial Risk Committee (CFRC), comprised of all 15 FSOC members. The CFRC first met in February 2022 and aims to facilitate interagency information sharing, coordination, and capacity building.
Progress on FSOC climate report recommendations by members
In addition to building internal capacity, including staffing and training, FSOC members are working to:
Enhance Public Climate-Related Disclosures
- In May 2022, the Securities and Exchange Commission (SEC) issued a proposal on climate disclosures. Please see here for CREFC’s response. The SEC also proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of ESG factors;
- On April 6, 2022, the Executive Committee of the National Association of Insurance Commissioners approved the updated Climate Risk Disclosure Survey for insurance companies to align with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures framework; and
- The Federal Insurance Office (FIO) expects to publish, by the end of 2022, an analysis of existing climate-related disclosure requirements for insurers on climate-related issues or gaps in the supervision and regulation of insurers.
Assess and Mitigate Climate-Related Risks That Could Threaten U.S. Financial Stability
The Factsheet noted the need for strong analytical tools to assess climate-related financial risks and highlighted the below developments:
- The Federal Reserve is developing a program of climate-related scenario analysis to evaluate the potential economic and financial risks posed by different climate outcomes;
- In June 2022, the Commodity Futures Trading Commission (CFTC) published a request for information on climate-related financial risk related to derivatives markets, underlying commodities markets, and market participants;
- The Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) proposed principles on climate-related financial risk management for large banks, published in December 2021 and March 2022, respectively, for each agency. The principles include draft guidance on the development and implementation of scenario analysis by supervised firms; and
- The Federal Housing Finance Agency (FHFA) announced that the 2022 Conservatorship Scorecard will hold Fannie Mae and Freddie Mac accountable for ensuring resiliency to climate risks.
Fill Climate-Related Data and Methodological Gaps
- The Office of Financial Research announced the launch of its Climate Data and Analytics Hub pilot program to help financial regulators assess potential risks to financial stability stemming from climate change.
CREFC, via its Sustainability Initiative, continues to monitor both legislative and regulatory climate-related developments. Please contact Sairah Burki with any questions.