First-Ever Financial Regulator’s Report Finds That U.S. Financial System At-Risk From Climate Change
Report includes potential solutions including carbon pricing and investing in nature
Today, the Commodities Futures Trading Commission (CFTC) released the first-ever report under the auspices of a US financial regulator that comprehensively examines climate risk to the U.S. financial system. The report by the CFTC’s Subcommittee on Climate-Related Market Risk, which includes contributions from The Nature Conservancy, finds that climate change is already having an impact on financial markets, commercial and residential real estate, the agricultural sector, infrastructure, human productivity, and the insurance industry. Yet, currently, US financial regulators and financial markets are not addressing climate-related financial risks.
In addition to recommending that U.S. financial regulators should take action urgently and decisively to measure, understand, and address climate risk to the financial sector, the report states that the financial community should work to develop proactive solutions, including investments in new financial products, services, and technologies, that are essential for transitioning to a net-zero emission economy. For example, the report discusses TNC’s work to develop insurance products which recognize the risk reduction benefits of nature.
“This report makes clear that climate change poses serious risks to the U.S. financial system,” said Jennifer Morris, CEO, The Nature Conservancy. “It outlines substantive, comprehensive steps that financial regulators, policy-makers, and financial institutions can and should take in order to address climate-related risks to our financial system. Until financial markets begin to account for the risks related to climate change, capital will continue to flow in the wrong direction – in ways that contribute to, rather than reduce, the effects of climate change. We have an opportunity to make smart investments now to address climate change, create jobs, and bolster the U.S. economy.”
- The report’s recommendations included, but are not limited to:
- Establish a price on carbon that is fair, economy-wide, and effective in reducing emissions consistent with the Paris Agreement.
- Financial regulators should identify, analyze and address climate-related risks to financial institutions and markets.
- Financial regulators should pilot climate-risk stress testing.
- Financial institutions should Integrate climate risk into their balance sheets.
- Encourage the development of and investments in new climate-related technologies and financial products to mitigate climate change, including investments in natural climate solutions.
“For the first time, representatives from industry, banks, insurers, pension funds, asset managers, conservation organizations, and trade associations have come together to not only examine how climate change is impacting financial markets – but to make comprehensive recommendations for U.S. financial regulators and financial institutions to address climate risks,” said Dave Jones, senior director, environmental risk for TNC and a member of the CFTC subcommittee authoring the report. “Financial institutions face real risks from climate change and re-aligning their investment and lending portfolios to net zero greenhouse gas emissions not only addresses that risk, it also provides additional capital to invest in ways that will contribute to reducing the emissions driving climate change, including investments in natural climate solutions.”
U.S. financial regulators such as the Federal Reserve, SEC, CFTC, the Department of Labor, the Financial Stability Oversight Council, and state insurance regulators will need to consider the report and its recommendations.
“If the U.S. financial system, which underpins our economy, is to remain stable in the face of climate change, U.S. financial regulators and financial institutions need to move urgently and decisively to address climate risks to the U.S. financial system.” Jones concluded.
The Nature Conservancy is a global conservation organization dedicated to conserving the lands and waters on which all life depends. Guided by science, we create innovative, on-the-ground solutions to our world's toughest challenges so that nature and people can thrive together. We are tackling climate change, conserving lands, waters and oceans at an unprecedented scale, providing food and water sustainably and helping make cities more sustainable. Working in 72 countries and territories: 38 by direct conservation impact and 34 through partners, we use a collaborative approach that engages local communities, governments, the private sector, and other partners. To learn more, visit www.nature.org or follow @nature_press on Twitter.