Ceres' annual Climate Risk Scorecard demonstrates federal financial regulators' progress in addressing climate risk
A scorecard released by the Ceres Accelerator for Sustainable Capital Markets shows how 10 federal financial regulators have implemented over 100 actions since July 2022 addressing the financial risks of climate change. However, U.S. regulators have more work to do to address these risks with the same level of ambition and urgency as global counterparts.
The 2023 Climate Risk Scorecard: Assessing U.S. Financial Regulator Action on Climate Financial Risk found most assessed regulators have made strides in producing research and data on climate risk and incorporating climate risk into their supervision of regulated entities, however urgent action is required to improve climate-related disclosures, increase transparency in climate-related risk management practices, include climate risks within regulatory frameworks, implement climate-related scenario analysis, and assess climate risks on financially vulnerable communities.
Those assessed include the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Securities and Exchange Commission, the Municipal Securities Rulemaking Board, the Public Company Accounting Oversight Board (PCAOB), the Commodity Futures Trading Commission, the Federal Housing Finance Agency, and the Department of the Treasury.
"Climate-related financial risks have placed capital markets and financial institutions in an unparalleled state of vulnerability," said Steven M. Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. "The interconnectedness of the U.S. financial system means risk and climate events can trigger cascading crises that undermine the integrity of the entire economy. The sector needs to better integrate climate risk into its supervision of financial entities and put stronger practices in place to assess the consequences of the climate-related scenarios that will arise unless we make systemic changes."
Key findings include:
More than 100 regulatory actions since July 2022 addressing climate-related financial risks, notably shifting beyond foundational actions toward implementing climate-related risk management practices in step with global counterparts.
Nine regulators have publicly affirmed climate as a systemic risk to the financial system, signaling climate risk may adversely impact their regulated entities as well as the broader economy. The PCAOB stands alone in not making this affirmation yet.
Six of 10 regulators have robust internal climate-related capacities, with additional progress this year from those still developing their staffing and technical expertise.
All but two regulators improved transparency in measuring and managing climate-related financial risks at their regulated entities.