New Scorecard Demonstrates Federal Financial Regulators’ Progress in Addressing Climate Risk

December 10, 2024 /3BL/ - A new scorecard released today shows how 10 federal financial regulators have implemented hundreds of actions in the last 18 months to address the systemic financial risks of climate change. However, U.S. regulators have much more work to do to address these risks as the frequency and severity of weather disasters continue to increase.

The 2024 Climate Risk Scorecard: Assessing U.S. Financial Regulator Action on Climate Financial Risk found most of the assessed regulators have made meaningful strides in producing research and data on climate risk and incorporating these risks into their oversight of regulated entities. However, urgent action is required to improve climate-related disclosures, increase transparency in climate-related risk management practices, including within regulatory frameworks, implement climate-related scenario analysis, and assess climate risks on financially vulnerable communities.

Among those assessed include the Federal Reserve Bank (the Fed), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), the U.S. Securities and Exchange Commission (SEC), the Municipal Securities Rulemaking Board (MSRB), the Public Company Accounting Oversight Board (PCAOB), the Commodity Futures Trading Commission (CFTC), the Federal Housing Finance Agency (FHFA), and the U.S. Department of the Treasury.

"Our latest scorecard reveals a critical narrative: U.S. financial regulators increasingly recognize the profound economic risks from climate change. However, there is so much more to do to catch up with global counterparts,” said Steven M. Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets. “From initial hesitation to proactive strategies, there has been a meaningful evolution in the past four years with how these institutions approach climate-related financial risks. We remain hopeful that future administrations will continue to build upon this momentum, implementing forward-thinking policies that safeguard and strengthen the resiliency of our financial systemin the face of unprecedented challenges related to a warming planet."

Notable progress in this year’s scorecard includes:

• The Federal Reserve System (Fed), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) published the final interagency guidance Principles for Climate-Related Financial Risk Management for Large Financial Institutions.
• The three banking regulators adopted a historic interagency update to the Community Reinvestment Act (CRA) regulations, incorporating climate resiliency and disaster preparedness provisions for the first time, and representing the most significant changes to the CRA in 20 years.
• The SEC finalized its landmark climate disclosure rule requiring all U.S. publicly listed companies to report climate-related financial risks.
• The U.S. Treasury published the Principles for Net Zero Financing and Investment in September 2023 and the Voluntary Carbon Markets Joint Policy Statement and Principles in March 2024 with the White House, the Department of Agriculture, and the Department of Energy.
• The Federal Housing Finance Agency (FHFA) published climate-related risk management guidance for Fannie Mae and Freddie Mac (the Enterprises) and Home Loan Banks.

Regulators were assessed on progress achieved from July 2023 through November 2024 across key categories, using previous years as a baseline, measuring whether each regulator has:

• Publicly affirmed climate as a systemic risk
• Expanded internal climate-related capacities
• Increased transparency regarding climate-related risk management activities
• Assessed climate risks on financially vulnerable communities
• Produced research and data on climate change
• Conducted climate-related scenario analysis
• Improved climate-related disclosure
• Included climate risk in supervisory guidance
• Included climate risk in regulation

The full methodology can be found here.

2023 and 2024 were record years for the U.S., with dozens of weather disasters where losses exceed $1 billion in damages, costing over $92.9 billion in 2023 and $61.6 billion in 2024, according to the latest estimates. With the frequency and severity of these disasters expected to increase over the years, the economic challenges presented by these events will affect everything from insurance and housing to banking and the stock market, and could endanger the stability of the entire financial system, underlining the need for federal regulators to accelerate their efforts to address this systemic risk as part of their existing responsibilities.

The 2024 Scorecard follows up on three previous scorecards, assessing nine categories outlined in the Financial Stability Oversight Council’s October 2021 Report on Climate-Related Financial Risk.

 About Ceres Accelerator for Sustainable Capital Markets 

The Ceres Accelerator for Sustainable Capital Markets is center within Ceres that aims to transform the practices and policies that govern capital markets by engaging federal and state regulators, financial institutions, investors, and corporate boards to act on climate change as a systemic financial risk. For more information, visit ceres.org/accelerator.  

Media contact:  

Diane May, Ceres   
dmay@ceres.org