Sending Office: Honorable Sean Casten
Become a Cosponsor of the Climate Change Financial Risk Act of 2019
House Cosponsors: Casten, Wild, Tonko, Brownley, Bonamici
Senate Cosponsors: Schatz, Van Hollen, Whitehouse, Bennet, Merkley, and Booker.
Climate change is increasing the frequency and severity of extreme weather events like floods and wildfires. It is also changing long-term climate patterns in ways that will lower labor productivity, devalue and destroy fixed assets, stress agricultural
yields, and ultimately affect every sector of our economy. These impacts are likely to exacerbate market volatility and erode investor confidence, ultimately increasing systemic risk.
Climate-related financial risks fall into two general categories: physical risks and transition risks. Physical risks are the direct financial losses resulting from severe weather events and fundamental changes like drought and sea-level rise—for example,
the impact to property values from increased flooding. Transition risks are the financial impacts of a transition to a low-carbon economy—for example, the impact to oil reserve values as government policies and changing consumer preferences weaken future oil
U.S. financial regulators are lagging their international peers in attempting to quantify and manage these risks. Already, in June 2019, the Bank of England began stress testing the U.K. financial system against climate risks with an exploratory three-scenario
test for insurance firms. The Climate Change Financial Risk Act will change that by mandating stress tests for large financial institutions to measure their resilience to climate-related risks.
Specifically, the Climate Change Financial Risk Act of 2019 would:
- Require the Federal Reserve (“Fed”) to establish an advisory group of climate scientists and climate economists to help develop climate change scenarios for the financial stress tests.
- The Fed will use the scenarios to quantify how expected physical and/or transition risks would disrupt global business operations and otherwise change conditions across the economy.
- Based on the financial and economic impacts of the scenarios, the Fed will conduct stress tests every two years on the same large financial institutions that are currently subject to Comprehensive Capital Analysis and Review (CCAR) stress tests—i.e., firms
with more than $250 billion in total consolidated assets.
- The biennial tests will require each financial institution to create and update a qualitative plan that defines how the institution will evolve its capital planning practices to limit the financial impacts of future climate risks. These adaptations could
include the orderly divestment of certain assets or the mitigation of credit risk by reducing lending to climate-exposed sectors like oil and gas.
- The Fed may object to an unreasonable climate risk capital plan, and if the Fed objects, the institution may not proceed with capital distributions until the Fed lifts the objection.
- The bill also creates a climate change risk subcommittee within the Financial Stability Oversight Council (FSOC) and requires it to assess and report annually on the systemic risks of climate change to the U.S. financial system.
As the climate crisis continues to worsen, it is essential that our financial system be able to quantify and successfully manage these risks. The Climate Change Financial Risk Act of 2019 is an important first step in that effort.
To become a cosponsor of this bill or for more information, please contact Sam Wojcicki (email@example.com) with Rep. Casten.
Member of Congress
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