Dive Brief:
- Members of the U.S. Financial Stability Oversight Council (FSOC), which is led by the Treasury Department, voted unanimously Monday to establish a committee to address climate-related financial risks, according to a Treasury press release.
- The council named its initial crop of members for the Climate-related Financial Risk Advisory Committee (CFRAC), which will help the FSOC gather information and analysis on climate-related disclosures, according to the release.
- The CFRAC will leverage the expertise of a broad range of stakeholders, and help to improve “our collective understanding of how climate change may impact the financial sector,” Treasury Secretary Janet Yellen — who chairs the FSOC — said in a statement.
Dive Insight:
The FSOC first announced its plans to create such a committee in a 2021 climate risk report, which stated climate change is an “emerging threat” to the country’s financial stability.
Its 20 members comprise professionals across various industries including the financial space, non-profit organizations and climate-related data and analytics providers, according to the release. Members include Catherine Ansell, JPMorgan’s executive director, climate risk; Janine Guillot, special advisor to the chair of the International Sustainability Standards Board; and Ed Kearns, chief data officer at First Street Foundation.
“The newly established advisory committee will also ensure that state and federal policymakers hear from leading experts on climate-related financial risks,” Yellen said in a statement.
The creation of the FSOC’s committee comes as other regulators, most notably the Securities and Exchange Commission (SEC), move to include climate-related disclosures among businesses’ financial reports.
The SEC proposed rules in March that would require companies to include information about climate risks that are “reasonably likely to have a material impact on the business,” according to the March release.
The comment period for the proposal closed in June, with CFOs left bracing for how such requirements could impact their financial reporting. The new disclosure requirements could put additional pressures on financial heads as they coordinate quarterly reports and other key metrics.
Financial executives have had mixed reactions to the SEC’s proposed rules as well as other emerging environmental, social and corporate governance (ESG) reporting measures. The lack of ESG standards are only compounding the challenges faced by CFOs, who should be thinking about such reporting in the same way they consider other types of financial reporting, Lisa Edwards, president and chief operating officer of Diligent said in a recent CFO Dive interview.
As well as increasing their focus on climate-related risks, the FSOC is putting digital assets under the regulatory spotlight. Crypto-asset activities could constitute a risk to U.S. financial stability if left unchecked by regulation, according to a report released by the FSOC following their Monday meeting.
The report, a response to a March executive order by President Joseph Biden, points to three large regulatory gaps surrounding crypto-asset activities which must be addressed, it argues. These gaps include the limited federal regulation for crypto assets which are not securities, a lack of a comprehensive regulatory framework for crypto businesses and the risk of exposure faced by retail investors who are offered direct access to the market by crypto trading platforms.
SEC Chair Gary Gensler expressed his support for the report in a Monday statement released on the SEC’s website, writing that “crypto cannot exist outside of our public policy frameworks, regardless of what the crypto industry initially expected or what certain market participants might say today.”
“As the FSOC report notes, there’s a difference between regulatory arbitrage and noncompliance,” Gensler said in the statement. “All market participants benefit when there’s broad compliance with the rules. Further, it increases investor confidence in our markets. Frankly, though, in the crypto market there is a lot of noncompliance with the securities laws.”
