The Commodity Futures Trading Commission’s (CFTC) Market Risk Advisory Committee (MRAC) held a public meeting yesterday focusing on climate-related financial risks. The meeting featured presentations by regulators, market participants and academics.
CFTC Commissioner Rostin Behnam, the sponsor of MRAC, stressed the economic costs of natural disasters in his opening remarks, also noting that climate change affects several parts of the U.S. economy. CFTC Chairman J. Christopher Giancarlo emphasized in his opening remarks that the CFTC supports the work of MRAC and all five of the Commission’s advisory committees, including looking at climate change and other externalities like Brexit and new asset classes such as cryptocurrency.
CFTC Commissioner Brian D. Quintenz kept his remarks brief, but submitted a written statement, which stated that, “American futures and swaps markets have already played an important part in the reduction of carbon emissions related to electricity generation by serving as effective hedging venues that supported private sector ingenuity, discovery, and production of cleaner energy resources.” Following the introductory statements of the Commissioners, MRAC Chair Nadia Zakir welcomed two panels of speakers that discussed climate-related financial risks.
The first panel focused on topics including:
- Whether better data is needed regarding climate-related financial risks;
- Existing domestic and international policy initiatives and supervisory approaches to these risks;
- The role of disclosure, particularly in terms of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure (TCFD) disclosure framework; and
- Whether reporting on these issues should be mandatory or voluntary.
The second panel focused on market participants’ efforts to mitigate and manage climate-related financial risks, covering topics including:
- Challenges faced by market participants in the disclosure process, such as implementing scenario analysis and concern over legal liability; and
- Examples of market-based approaches to address these risks.
Chairman Giancarlo spoke at various points during the panel discussions, explaining that the CFTC does not oversee a disclosure regime as part of its regulatory authority and later expressing interest in understanding how derivative products have been used to mitigate climate-related financial risk. The panel discussions concluded with members of MRAC unanimously voting in favor of establishing four new subcommittees, including a Climate-Related Financial Risk Subcommittee. For the remainder of the meeting, MRAC received a status report from the Interest Rate Benchmark Reform Subcommittee and a presentation on European Market Infrastructure Regulation.
For more information on the meeting, access the CFTC event page here.
Legal assistant Sarah Foster contributed to this post.