Ceres Climate Risk Scorecard Shows U.S. Regulator Progress, Shortcomings

by | Jul 18, 2023

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(Credit: Ceres)

Ceres’ annual Climate Risk Scorecard has analyzed the actions of 10 federal financial regulators toward addressing climate-related financial risks.

Their findings revealed more than 100 regulatory actions toward addressing these risks yet also expressed how U.S. regulators have a long way to go in matching the urgent efforts of other global regulators. Assessed regulators include the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and six others.

Assessed regulators showed progress in producing research and data on climate risk and incorporating climate risk into their supervision of regulated entities. Nine out of the 10 regulators have publicly affirmed climate as a major systemic risk to the financial system.

“Climate-related financial risks have placed capital markets and financial institutions in an unparalleled state of vulnerability,” said Steven M. Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets. “The interconnectedness of the U.S. financial system means risk and climate events can trigger cascading crises that undermine the integrity of the entire economy. The sector needs to better integrate climate risk into its supervision of financial entities and put stronger practices in place to assess the consequences of the climate-related scenarios that will arise unless we make systemic changes.”

A Need for Increased Transparency, Consideration of Financially Vulnerable Communities

Ceres’ report explains that financial regulators need to make progress in improving climate-related disclosures and increasing transparency in their climate-related risk management. The relevance of regulatory transparency has increased, especially as climate risk and mitigation measurement systems have been developed.

The report also expresses the need for improvements toward including climate risks within regulatory frameworks, implementing climate-related scenario analysis, and assessing climate risks in financially vulnerable communities. Minimal public progress was made among regulators with the authority to measure risks in such communities.

Measurement of climate risk has become increasingly relevant in making financial decisions. In April of 2022, the SEC proposed increased disclosure of financial and climate risks and emissions reporting for potential investors. Increased disclosure of climate risk is needed to avoid greenwashing and to allow investors to make fully-informed financial decisions.

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