According to data gathered by the National Oceanic and Atmospheric Administration’s (NOAA’s) National Centers for Environmental Information, since 1980, the United States has sustained more than three hundred weather and climate disasters, including droughts, floods, severe storms, cyclones, wildfires, and winter storm events that, in the aggregate, led to costs or damage exceeding more than $1 billion.[1] Notwithstanding our long history of navigating severe-weather related events, the increasing frequency, severity, and intensity as well as the rising costs of these events raise important questions and remarkable concerns.

In May of 2021, President Biden issued an Executive Order on Climate-Related Financial Risk[2] directing the Secretary of the Treasury to engage with Financial Stability Oversight Council (FSOC) members to consider issuing a report on member agencies’ efforts to consider climate-related financial risk. In response to the Executive Order, the FSOC issued the Report on Climate-Related Financial Risk (Report).[3] The Report contains thirty-five recommendations aimed to:

1. Build capacity and expand efforts to address climate-related financial risks;
2. Fill climate-related data and methodological gaps;
3. Enhance public climate-related disclosures; and
4. Assess and mitigate climate-related risks that could threaten the stability of the financial system.   

Today’s Request for Information on Climate-Related Financial Risk (RFI) reflects the CFTC’s established leadership in response to requests to better understand the role of voluntary carbon markets as well as the agency’s commitment to ensuring a comprehensive effort to understand how our markets, market participants, including large and small agricultural and energy sector commercial and end users may be impacted by physical risks or acute climate-related events and transition risks or the stresses that result from shifts in policies, regulations, customer preferences, and technology.  Consistent with the CFTC’s mandate to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation, the RFI seeks comments on how climate-related financial risk may affect “registered entities, registrants, or other market participants, and the soundness of the derivatives markets,” including an assessment of “how registrants and registered entities may need to adapt their risk management frameworks—including, but not limited to, margin models, scenario analysis, stress-testing, collateral haircuts, portfolio management strategies, counterparty and third-party service provider risk assessments, and enterprise risk management programs—as well as how market participants may need to adapt their dealing, trading, and advisory businesses in the derivatives markets.”

These inquiries are well within the ambit of the CFTC’s statutory authority and continue a long-established tradition of engaging in thoughtful dialogue with our market participants and diverse stakeholders in order to understand their concerns related to emerging and evolving risk management oversight.  Among many complimentary and comprehensive efforts, careful evaluation of carbon markets may reveal a useful path for mitigating climate-related financial risk.  This RFI is an important step toward learning from our market participants how these markets may help them to hedge and efficiently manage existing and evolving climate-related risk. Consequently, I support the Commission’s RFI on Climate-Related Financial Risk and I look forward to the public responses.