Financial Stability Oversight Council (FSOC) and Climate-Related Risk

In addition to the SEC proposed rule, other agencies in the Treasury have been active in addressing climate change.  Important, but without the wow factor, Treasury’s Financial Stability Oversight Council (FSOC) – a council of top regulators – met on July 28 to discuss climate-related financial risk. In 2021, the FSOC had released the Report of Climate-Related Financial Risk and Thursday’s meeting reported on efforts undertaken and progress made, including:

• Climate-related Financial Risk Committee (CFRC) formed – interagency, staff-level – “Given the known gaps in climate-related financial data, the continuing evolution in methodologies to assess risk, and the challenges of translating climate data into potential financial impacts, the CFRC plays an important role in enabling FSOC members to learn from one another on emerging best practices.”
• Updated Climate Risk Disclosure Survey (to align with TCFD framework) approved by the National Association of Insurance Commissioners
• Underscored importance of scenario analysis as an important tool. The Board of Governors of the Federal Reserve System is developing a program of climate-related scenario analysis to evaluate the potential economic and financial risks posed by different climate outcomes.
• FSOC members OCC and FDIC have proposed principles on climate-related risk for large banks
• Federal Housing Finance Agency (FHFA) will hold Fannie Mae and Freddie Mac accountable for ensuring resiliency to climate risks
• Climate Data and Analytics Hub announced – to address climate-related data and methodological gaps – priority for the CFRC
• (Members of the FSOC include SEC, OCC (Office of the Comptroller of the Currency), CFPB (Consumer Financial Protection Bureau, FDIC (Federal Deposit Insurance Corporation), CFTC (Commodity Futures Trading Commission), FHFA (Federal Housing Finance Agency), NCUA (National Credit Union Administration))