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CFTC establishes new climate risk unit

Source: CFTC

Commodity Futures Trading Commission Acting Chairman Rostin Behnam today announced he has established the Climate Risk Unit (CRU) to support the agency’s mission by focusing on the role of derivatives in understanding, pricing, and addressing climate-related risk and transitioning to a low-carbon economy.

Comprised of staff from across the CFTC’s operating divisions and offices, the CRU represents the agency’s next step in response to what has become a global call to action on tackling climate change. The CRU is intended to accelerate early CFTC engagement in support of industry-led and market-driven processes in the climate—and the larger ESG—space critical to ensuring that new products and markets fairly facilitate hedging, price discovery, market transparency, and capital allocation.

“The COVID-19 pandemic as well as increasingly severe weather and environmental impacts have firmly established the role of financial regulators in providing decisive leadership in times of market stress,” said Acting Chairman Behnam. “Climate change poses a major threat to U.S. financial stability, and I believe we must move urgently and assertively in utilizing our wide-ranging and flexible authorities to address emerging risks. The CFTC’s unique mission focused on risk mitigation and price discovery puts us on the front lines of this effort. Leveraging the CFTC’s personnel and expertise demonstrates our commitment to taking thoughtful and deliberate next steps toward building a climate-resilient financial system.”

The formation of the CRU follows years of climate leadership at the CFTC by Behnam, who spearheaded the effort to establish the Market Risk Advisory Committee’s Climate-Related Market Risk Subcommittee and requested the September 2020 report on Managing Climate Risk in the U.S. Financial System.

As the U.S. joins governing bodies around the world in recognizing the need to reduce carbon emissions, the derivatives markets regulated by the CFTC will play a vital role in supporting and developing new products and solutions that address climate and sustainability challenges. In support of these efforts, it is widely recognized that globally consistent standards, taxonomies, and practices will be critical as the industry and policymakers partner and guide their economies through the transition. Leveraging in-house expertise with a history of developing and enforcing standards and policies alongside exchanges and self-regulatory organizations, the CFTC’s CRU will ensure the agency remains a helpful participant in all relevant discussions.

In addition to undertaking research and engaging in ongoing market and stakeholder outreach, in support of the CFTC’s mission, the CRU may facilitate:

Through proactive engagement with the exchanges, clearinghouses, industry groups, and market participants, an active and ongoing dialogue regarding new and emerging risks related to climate change and the impact of extreme and increasingly frequent and severe weather events and how such climate-related market risks are being or ought to be addressed in a fair and equitable way.
A better and more complete understanding in the CFTC of the derivatives and related products being developed to address climate-related market risks and to facilitate the transition to a net-zero economy, and how such products fit within and interact with the CFTC’s regulatory and supervisory framework, including the identification of areas where refinements or modifications could be made either to the products or to the CFTC’s approaches.
Increased participation in domestic and international fora aimed at building consensus for consistent standards, taxonomies, disclosures, and practices across derivatives products and markets, as well as related clarity on regulatory, capital, and accounting standards.
Coordinated efforts to support the development of relevant and reliable climate-related market risk data resources.
Consideration and evaluation of whether tools such as climate finance labs or regulatory sandboxes would enhance development of climate-related market risk tools, products, and services.

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