FSOC highlights progress on climate report recommendations

August 8, 2023|Written by |Financial Stability Oversight Council, Federal Reserve

US regulators have made progress on implementing climate report recommendations from the Financial Stability Oversight Council (FSOC), but still need to do more to coordinate data, disclosures, and risk analysis, the agency said in its latest progress report.

The report, published 28 July by the FSOC’s climate-related financial risk committee, outlines the progress regulators have made towards implementing climate change policies.

Some of the areas of progress include the committee creating a framework to identify climate-related financial risks and the Office of Financial Research launching a platform to analyse and share financial and environmental data. Meanwhile, the US Treasury’s Federal Insurance Office issued a request for comments on a proposal to collect data on homeowner’s insurance to assess the risk of insurance coverage in areas vulnerable to climate change.

The Federal Reserve also launched a pilot climate analysis exercise for six large financial institutions: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo. The pilot exercise is composed of two modules on both physical risk and transition risk. The central bank will publish its insights on the project at the end of the year.

The Fed, OCC and FDIC have also released proposals for public comment on climate-related financial risk management for certain large financial institutions.

Besides highlighting the progress made, the FSOC report also recommends that more work is done on coordinating the development of key risk indicators for risk assessments. It also identified the need for more analysis on the intersection of physical risk, real estate and insurance. As climate change has made some areas more vulnerable to flooding and wildfires, insurance company costs and policies have changed.

Despite what FSOC describes as progress, critics say US regulators have been slow to act on mitigating the climate crisis.

The institutions that are part of the council “have taken few concrete actions that might prevent some of the worst financial impacts related to the climate crisis,” said Anne Perrault, senior climate finance policy counsel at advocacy group Public Citizen.

While Perrault welcomed report’s recommendations, FSOC members need to “pick up the pace” and do more before the window of opportunity to make a difference closes.

“As we suffer through the hottest months in recorded history, alarm bells should be ringing and regulators should be acting,” she added.

Public Citizen has published its own climate roadmap for US financial regulators, which recommends requiring more disclosures, including expanding research, protecting marginalised communities, and making regulation a core pillar of the response to climate-related financial risks.

This page was last updated August 8, 2023

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