FSOC Releases Report on Climate-Related Financial Risk

On October 21, 2021, the U.S Department of the Treasury (Treasury) Financial Stability Oversight Council (FSOC) released its Report on Climate-Related Financial Risk. The press release of the report stated that for the first time, the FSOC identified that climate change is an emerging and increasing threat to U.S. financial stability. The report analyzes how climate change directly impacts financial risks, discusses current regulatory requirements for climate-related financial disclosure, and describes the challenges of climate-related data collection and disclosures.

The Report on Climate-Related Financial Risk includes 35 recommendations for further regulatory action, including enhancing public climate-related disclosures. These recommendations are primarily directed toward the FSOC's member agencies. These agencies would then make changes to their requirements for the organizations they regulate. FSOC member agencies consist of:

• U.S. Securities and Exchange Commission (SEC)
• National Credit Union Administration
• Office of the Comptroller of the Currency
• Consumer Financial Protection Bureau
• Federal Deposit Insurance Corporation
• Board of Governors of the Federal Reserve System
• Treasury 
• Commodity Futures Trading Commission
• Federal Housing Finance Agency

The FSOC was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act to monitor and respond to risks to the U.S. financial system. The FSOC is primarily composed of the heads of the nine member agencies.

The report also stated that the SEC's Division of Enforcement established a task force focused on environmental, social, and governance (ESG)-related misconduct, including material misstatements or omissions in issuers' disclosure of climate-related risks. 

While this report does not require action by regulatory agencies, the recommendations spell out a potential road map for future regulations these agencies may enact for climate-related financial and risk disclosure. 

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