The CFTC is one of the regulators at the forefront of climate-related risk management as firms and individuals will increasingly turn to the derivatives markets to manage and mitigate climate change-induced physical and transition risk.  We are making great progress at the CFTC to better understand our role in adapting the derivatives markets to withstand increasing climate-related financial risk.

In March 2021, I created the Climate Risk Unit (CRU) within the CFTC to leverage the agency’s resources and expertise to better understand the role of derivatives in pricing and mitigating climate-related risk, and support the orderly transition to a net zero economy through market-based initiatives.[1]  During its initial 12 months, the CRU focused on engaging with internal and external stakeholders to explore opportunities for public-private partnerships to identify how the commodities and derivatives markets may support the transition of risk to finance climate change solutions.

As an outgrowth of that exploration, the CRU hosted an all-day voluntary carbon market (VCM) convening at the Commission on June 2nd.  The convening, which included panelists from all corners of the VCM, discussed carbon offset standards and quality initiatives; the trading ecosystem for carbon offsets, which are the underlying commodity to several CFTC-regulated futures products; and the participants’ recommendations for the CFTC’s role in this space.

To support a whole-of-government approach to climate-change, the convening included representatives from the White House’s Office of Science and Technology Policy, and the Departments of Treasury, State, Transportation, and Agriculture to discuss their policy initiatives for carbon offsets.

Concurrently, I announced the Commission’s issuance of a Request for Information (RFI) on climate-related market risk.  The RFI seeks feedback on all aspects of climate-related financial risk as it may pertain to the derivatives markets, underlying commodities markets, registered entities, registrants, and other market participants.  The RFI also seeks responses on questions specific to data, scenario analysis and stress testing, risk management, disclosure, product innovation, voluntary carbon markets, digital assets, greenwashing, financially vulnerable communities, and public-private partnerships and engagement.  The Commission may use this information to issue new or amend existing guidance, interpretations, policy statements, and regulations, or take other potential Commission action.  My intention is to focus on ensuring that our market participants are equipped to manage their risks from increasingly severe and frequent weather events as well as the transition to a net-zero, low-carbon economy.  I look forward to the public’s feedback, which is due by October 7, 2022.