Ceres: Turning Up the Heat on Climate Financial Risk

Federal reserve Ceres report

While there has been early progress from U.S. financial regulators to acknowledge the systemic financial risks of climate change, most have yet to act in line with climate science and lag far behind their global counterparts.

In a April 2021 report, Ceres lays out the steps that U.S. financial regulators should take now to address climate change consistent with their mandates and seize the vast opportunity of a sweeping economic transformation that can stabilize our climate while reducing long-standing social and economic inequalities. 

In the ten months since Ceres' June 2020 report, "Addressing Climate as a Systemic Risk," there has been early progress from financial regulators to acknowledge the systemic financial risks of climate change. Of particular note, in November 2020 the Federal Reserve identified climate as a near- term “financial stability risk.” The U.S. Commodity Futures Trading Commission (CFTC) climate risk subcommittee also issued a comprehensive report with an unequivocal warning: “Climate change poses a major risk to the stability of the U.S. financial system and its ability to sustain the US economy.” Despite these advances, most U.S. federal and state financial regulators have yet to act on the climate crisis and lag far behind their global counterparts and what the science demands.

This report recommends that U.S. financial regulators take four steps now to address climate change:

1. Affirm: Immediately affirm the systemic nature of the climate crisis and outline action steps to address the crisis, including developing details for how climate change will be integrated into prudential supervision including stress tests.

2. Activate: Integrate climate change into  prudential supervision of key industries including banks and insurance companies.Mandate climate change disclosure and reinstate and reinforce the freedom of investors to address climate change risks.

3. Integrate: Integrate racial equity into discussions on climate change and financial stability. Incorporate considerations of climate change in pandemic recovery responses .

4. Build capacity: Strengthen financial regulator coordination domestically and globally. Build out climate competence of staff and enhance internal capacity through research and advisory groups.

Ceres is a nonprofit that works with investors and companies to promote sustainable solutions to challenges including climate change, water scarcity and pollution, and inequitable workplaces. Founded in response to the Exxon Valdez oil spill in 1989, Ceres promotes what it calls “the business case for sustainability.” Ceres' climate-related work can be found here. Its most recent official financial disclosure is here.