"Frequent and devastating shocks from climate change" pose a threat to U.S. financial markets, according to a report released Wednesday to the Commodity Futures Trading Commission.
The CFTC official responsible for the report from the regulator's climate-related market risk subcommittee called it, "the first of-its-kind effort from a U.S. government entity." Members of the nonpartisan advisory subcommittee voted 34-0 to adopt the report, "Managing Climate Risk in the U.S. Financial System."
"Climate change is expected to affect multiple sectors, geographies and assets in the United States, sometimes simultaneously and within a relatively short timeframe," the report said, noting that "transition and physical risks — as well as climate and non-climate-related risks — could interact with each other, amplifying shocks and stresses."
In a statement, CFTC Commissioner Rostin Behnam said extreme weather events, including recent wildfires, hurricanes and derechos, "will likely continue to worsen in frequency and intensity as a result of a changing climate," and that along with the physical and human devastation, "escalating weather events also pose significant challenges to our financial system and our ability to sustain long-term economic growth."
The report offers 53 recommendations for policymakers, regulators and stakeholders to begin taking steps to build a climate-resilient financial system. Financial regulators should "incorporate climate-related risk into their mandates and develop a strategy for integrating these risks in their work, including into their existing monitoring and oversight functions," said the report, which also calls for a price on carbon pollution.
U.S. financial regulators already have "wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk now" in four areas: oversight of systemic financial risk, risk management of particular markets and financial institutions, disclosure and investor protection, and safeguarding financial sector utilities, the report said.
Mindy Lubber, CEO and president of Ceres and a member of the subcommittee advising the CFTC, said the report underscores the financial threat of climate change. "For a politically and sectorally diverse group of influential members to issue such a strong call for regulatory action is testament to just how important a financial issue climate change is, Ms. Lubber said in a separate statement. "And to just how urgently we need leadership now."
