By Sarah Gonzalez, Director of Communications and Digital Media
Climate change could pose systemic risks to the U.S. financial system, according a report published by a Commodity Futures Trading Commission (CFTC) advisory panel on Sept. 9.
“The central message of this report is that U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand and address these risks,” noted the report, dubbed Managing Climate Risk in the U.S. Financial System.
The report, commissioned by Rostin Behnam, one of two Democrats on the five-member CFTC, was released by the agency’s Climate-Related Market Risk Subcommittee of the Market Risk Advisory Committee (MRAC).
“The physical impacts of climate change are already affecting the United States…the transition to net-zero emissions may also impact many segments of the economy,” stated the 196-page report. “Both physical and transition risks could give rise to systemic and sub-systemic financial shocks, potentially causing unprecedented disruption in the proper functioning of financial markets and institutions.”
This report recommended an economy-wide price on carbon be put in place “at a level that reflects the true social cost of those emissions,” while also noting that “pricing carbon is beyond the remit of financial regulators; it is the job of Congress.”
The subcommittee’s report is the first of its kind from a government entity to examine threats of a changing climate to U.S. financial stability.
Each of the subcommittee’s 34 members, which included representatives from Cargill Inc., Bunge North America, and the CME Group, voted to release the report, but some remained neutral on its recommendations. A disclaimer included in the report stated its views “do not necessarily” reflect those of the CFTC or the federal government.
A press release announcing the release of the report, which includes 53 recommendations to mitigate climate change risks to the financial system, outlined the report’s conclusions:
- Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy;
- Climate risks also may exacerbate financial system vulnerability that have little to do with climate change; including vulnerabilities caused by a public health pandemic that has stressed balance sheets, strained government budgets and depleted household wealth;
- U.S. financial regulators need to recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand and address these risks;
- Existing statutes already provide U.S. financial regulators with wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk now;
- Regulators can help promote the role of financial markets as providers of solutions to climate-related risks; and
- Financial innovation is required not only to efficiently manage climate risk but also to facilitate the flow of capital to help accelerate the net-zero transition and increase economic opportunity.
In a Sept. 8 letter of support published along with the report, John Hartmann, the global sustainability lead for Cargill Agricultural Supply Chain, said the report’s capital allocation recommendations “state that efforts should aim to facilitate an orderly transition, where possible, avoiding adding financial strain on already stressed sectors, including agricultural producers and commercial and industrial companies, among others. We believe the future path should generate positive incentives that realize the potential of nature and agricultural-based climate change solutions and avoid adding financial strain to agricultural producers.”