The US Treasury has launched a climate-related financial risk advisory committee as part of the Financial Stability Oversight Council’s plans to better identify the risks that climate change poses to the financial system.
- The Climate-related Financial Risk Advisory Committee (CFRAC) will help the Council to gather and analyse data, and provide guidance on how best to mitigate climate risk.
- An advisory committee on climate risk highlights growing US recognition of the dangers of ignoring its impacts.
- The Committee will accelerate the progress being made by US financial regulators to address climate-related risks.
The Council has appointed the team as part of a commitment made in 2021 to ensure financial stability within the US, following the treasury’s recognition of the already significant costs of human-induced climate change such as rising sea levels, droughts, wildfires and intensifying storms, among others.
The move could also help the country in its goal of achieving a net-zero economy by 2050.
What the Committee has set out to do
The CFRAC will assist the Council in gathering data and analysing climate-related risks, before making recommendations on how they can best be mitigated.
For example, it will identify data inconsistencies and recommend options on how to fill any gaps.
Its 20 members come from various backgrounds, including the financial services industry, non-governmental research institutions, climate-related data and analytics providers, non-profit organisations and academia. Their first meeting is expected to be held in early 2023.
Secretary of the Treasury Janet L. Yellen said: “Assessing climate-related financial risk is a complex and important task.”
She added: “We will leverage the expertise of those outside of government and work collaboratively to improve our collective understanding of how climate change may impact the financial sector. The newly established advisory committee will also ensure that state and federal policymakers hear from leading experts on climate-related financial risks.”
US financial regulators are making significant progress in addressing climate risk
A scorecard published by non-profit organisation Ceres in June 2022 showed that US financial regulators across nine federal agencies had taken notable steps to address climate-related financial risk within the previous year.
Their actions have likely been informed by the Financial Stability Oversight Council, which acknowledged for the first time in October 2021 that climate change was a threat to the US financial system.
Progress continues to be made as the Federal Reserve launched a climate risk pilot for six major banks – Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Wells Fargo (NYSE:WFC).
The project will involve each bank exploring the impact of different climate scenarios on selected parts of their businesses, gathering data throughout 2023 before sharing it with the Fed for further analysis.