- US financial authorities have significantly strengthened their ability to address climate change’s impact on financial stability.
- The US Treasury has approved the charter and membership of the Financial Stability Oversight Council’s (FSOC) first ever outside advisory committee which will be specifically dedicated to climate issues.
- Experts are drawn from academia and civil society and include industry and data analytics experts. The US Environmental Protection Agency will serve as an observer. They are ready to work. This is a welcome development.
- FSOC also heard presentations on global financial market developments and energy markets.
The US Treasury, alongside authorities for banking, insurance, commodities, securities and housing markets have approved a charter for the Climate-related Financial Risk Advisory Committee (CFRAC). They gather to assess and address systemic financial stability risks under the umbrella of the FSOC which was established after the 2008 financial crises under the US. Dodd-Frank Act. After 12 years, their first ever advisory committee is climate focussed, including 20 members plus the EPA as an observer.
This is an important and positive development. Members can inform and foster continued US interagency coordination on climate-related financial stability issues, which is significant as the US embraces a ‘whole of government approach’ to tackling climate change. Moving forwards, CFRAC must consider US financial authorities’ cross border engagements on climate financial stability issues. This includes the Treasury Department’s G7 engagements, involvement in the Financial Stability Board, the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors.
FSOC’s other climate change work will likely be summarized by the end of year in its forthcoming annual report, building on the stock taking done at its July 2022 meeting. The CFRAC will meet in early 2023. In the meantime, FSOC members are advancing their respective regulatory agendas on scenario testing for large banks, mandated climate related financial disclosures by public companies, and voluntary carbon markets.
Quotes on US FSOC Climate Advisory Committee
Elizabeth Jacobs, Senior Specialist on US Financial Regulation at E3G said:
“We congratulate the newly announced CFRAC members. This signals the US’s commitment to keeping climate change issues at the top of its financial stability agenda. This is a welcome signal ahead of Washington DC hosting the annual World Bank/International Monetary Fund meetings later this month.”
Kate Levick, Associate Director, Sustainable Finance, E3G said:
“We’re glad to see more climate capacity building take place within FSOC. We hope as a result to see the US playing a shaping role in international discussions. CFRAC members should take note of many relevant initiatives in other jurisdictions, including the UK’s commitment to require listed companies and financial firms to publish climate transition plans. When aggregated such plans can usefully inform development of micro and macro prudential policies.”
Note to Editors
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