CFTC Report Warns Climate Change Poses Risk to Financial System

Sep 18, 2020Banks & Credit Unions, News

A recent report from a task force for the Commodity Futures Trading Commission (CFTC) warned that climate change could seriously affect the U.S. financial system and urged regulators to move decisively against climate-related threats. This is the most blunt warning to come from a financial regulator to the U.S. about the stresses of climate change, which has been a major concern in the European Union, Japan, and other nations.

“Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” said the task force in its report, according to Politico. The task force is made up of U.S. asset managers, academia, bank officials, and environmental groups, and is convened by CFTC Commissioner Rostin Benham.

The report urges regulators to be concerned about currently unknown factors, including how climate change can drive capital from affected industries. Such disturbances could have trickle-down effects on the entire financial system and cause a “disorderly reprice of assets.”

The report also recommended immediate action be taken by joining intergovernmental networks and developing pilot climate stress tests. It also suggested that the CFTC examine how climate change could impact actors such as speculative traders and funds.

Additionally, the report stated that data used to assess climate risk remains inadequate, and suggested that disclosure should include “material risks for various time horizons.” This disclosure would circumvent acute definitions of materiality and help companies make more informed decisions.

Many investors have advised regulators to start reporting their climate risks; banks like Morgan Stanley, Bank of America, and Citi have agreed to document greenhouse gas emissions financed by their lending portfolios.

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