On October 21, 2021, the Financial Stability Oversight Council (FSOC), which was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, released the Report on Climate-Related Financial Risk in response to President Biden’s Executive Order 14030 of May 20, 2021 on climate-related risks, to identify and address vulnerabilities in the US financial system related to warming temperatures, rising sea levels, and other events that have had a significant impact on the public and the economy. The Treasury Department reports that this is the first time that climate change has been identified by the FSOC as an emerging threat to US financial stability.
In its report, the FSOC makes several recommendations on how member agencies can enhance their efforts to address climate change that include taking steps to assess and mitigate their climate-related financial risks; enhance public climate-related disclosures to enable market participants to make informed decisions; compile consistent and reliable climate-related data that would enable regulators and private entities to better ascertain financial risks; and develop the capacity and expertise to properly identify and manage climate-related risks.
The report also shared measures that member agencies have already undertaken to address climate-related risks including the Securities and Exchange Commission’s current mission to evaluate its disclosure rules and request the public’s input on ways it can improve climate disclosures, and the Commodities Futures Trading Commission’s September 2020 report on managing climate risk in the US through its Market Risk Advisory Committee.
Department of Treasury Press Release | FSOC Report on Climate-Related Financial Risk | FACT SHEET: The FSOC Response to Climate-Related Financial Risk | Janet Yellen FSOC Statement