The Financial Stability Oversight Council today said that climate change represents an “emerging threat” to U.S. financial stability, and approved a report containing more than 30 specific recommendations that its member agencies can take to identify and address climate-related financial risk.
Among other things, the report recommends regulators continue their efforts to consider and incorporate climate-related risks into their regulatory and supervisory programs, determine whether new guidance or additional regulations are needed, and use scenario analysis as a tool for assessing climate-related financial risk. During the FSOC meeting this evening, Federal Reserve Chairman Jerome Powell noted that the Fed is currently in the process of developing a scenario analysis framework and would provide a progress update at a later time.
The report also calls for the use of enhanced climate-related risk disclosures. Specifically, FSOC recommended that regulators review existing public disclosure requirements and consider updates that would build on the work of the Task Force on Climate-Related Financial Disclosures. Regulators should also consider whether such disclosures should include disclosures of greenhouse gases produced and financed by financial firms, FSOC said.
Additionally, the report also calls for the establishment of a dedicated FSOC committee to assess climate-related financial risks, as well as an advisory committee that would comprise a wide range of industry stakeholders. The new advisory committee would be a forum for FSOC members to share information and approaches. The report also directs the regulatory agencies to increase their internal capacity to identify, measure, assess and report on climate-related financial risks and their effects on financial stability, and to address any gaps that hinder the gathering and analysis of reliable data.
Treasury Secretary and FSOC Chair Janet Yellen noted that “we must be crystal clear that an emerging threat is not the same as a hypothetical one, and it would be foolish to confuse the two.”
Notably, FDIC Chairman Jelena McWilliams abstained from the vote to approve the climate report, citing concerns about the limited timeframe under which the recommendations were developed.