Grygo is the chief content officer for FTF & FTF News.
The Securities and Exchange Commission (SEC) has been getting a lot of attention and corporate pushback for its proposed rulemaking efforts “that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks.”
While that battle is ongoing, the chairman of the Commodity Futures Trading Commission (CFTC) Rostin Behnam is reminding people that the CFTC is also on “the forefront of climate-related risk management” because firms and individuals will be looking to the derivatives markets to bring down “climate change-induced physical and transition risk.”
The CFTC reports that Behnam delivered his review of the regulator’s efforts on this issue on July 28 at a meeting of the Financial Stability Oversight Council, part of the U.S. Treasury Department. The chairman is declaring that the derivatives regulator has made “great progress” in helping the industry “better understand our role in adapting the derivatives markets to withstand increasing climate-related financial risk.”
He recounted earlier steps and their progress:
- Behnam notes that he launched the Climate Risk Unit (CRU) in March 2021 “to leverage the agency’s resources and expertise to better understand the role of derivatives in pricing and mitigating climate-related risk, and support the orderly transition to a net zero economy through market-based initiatives.” During its first year, “the CRU focused on engaging with internal and external stakeholders to explore opportunities for public-private partnerships to identify how the commodities and derivatives markets may support the transition of risk to finance climate change solutions,” he says.
- The CRU later “hosted an all-day voluntary carbon market (VCM) convening at the Commission on June 2,” Behnam says. “The convening, which included panelists from all corners of the VCM, discussed carbon offset standards and quality initiatives; the trading ecosystem for carbon offsets, which are the underlying commodity to several CFTC-regulated futures products; and the participants’ recommendations for the CFTC’s role in this space.” The event included representatives from the White House’s Office of Science and Technology Policy, and the Departments of Treasury, State, Transportation, and Agriculture and they were on hand to “discuss their policy initiatives for carbon offsets.”
- And Behnam also notes that CFTC has issued a Request for Information (RFI) on climate-related market risk. The RFI is intended to attract feedback “on all aspects of climate-related financial risk as it may pertain to the derivatives markets, underlying commodities markets, registered entities, registrants, and other market participants,” Behnam says. “The RFI also seeks responses on questions specific to data, scenario analysis and stress testing, risk management, disclosure, product innovation, voluntary carbon markets, digital assets, greenwashing, financially vulnerable communities, and public-private partnerships and engagement.”
Rostin Behnam
The CFTC will use the RFI information “to issue new or amend existing guidance, interpretations, policy statements, and regulations, or take other potential Commission action,” Behnam says. “My intention is to focus on ensuring that our market participants are equipped to manage their risks from increasingly severe and frequent weather events as well as the transition to a net-zero, low-carbon economy.”
The full text of the RFI was published in the Federal Register on June 8, 2022: https://bit.ly/3omXzcm The deadline for the feedback is Oct. 7, 2022.
For his part, SEC Chair Gary Gensler also spoke at that meeting and reported that the SEC had gathered more than 14,500 comments for its proposals.
By the fall, the regulators should have more than enough feedback on climate risk and the markets. It will be fascinating to see whether the feedback will have any impact upon the final regulations to come.
Need a Reprint?