The Treasury Department is launching a new effort to provide financial regulators with the data, tools and software they need to more accurately assess the threat climate change poses to the American financial system.
The “Climate Data and Analytics Hub” will be housed in the Treasury’s Office of Financial Research, an independent office created in the wake of the 2007-2008 financial crisis. One of its main missions is to track and investigate emerging financial threats.
A board of top regulators known as the Financial Stability Oversight Council, or FSOC, plans to announce the initiative today during one of its regular meetings. The heads of the Federal Reserve, the Securities and Exchange Commission and other agencies are also expected to tout the steps they have taken to address the financial realities of a warming world.
The move to launch the Climate Data and Analytics Hub comes nine months after the council first met identified climate change as an emerging threat to financial stability. It also comes amid efforts by the Biden administration to maintain climate momentum in the face of recent setbacks.
“As climate change continues, the economic costs of climate change are expected to grow, and climate-related risks to the financial system are also expected to increase,” the council wrote in a fact sheet provided to E&E News that will be published today.
The fact sheet adds that FSOC and its members have made “considerable progress” in addressing the problem, but that the new climate center is needed to help fill the data gaps they face regulators in climate-related work.
Among the most important developments by US financial agencies recently are two rules proposed by the SEC. The booming but largely unchecked universe of sustainable investing would be clamped down on. The other would require public companies to disclose more climate-related information.
The latter has come under fire from Republican officials and several business groups, who argue it would be overly burdensome for many businesses. They also say it solicits information that may not be material to a company’s financial performance (ClimatewireJune 17).
Other financial agencies have also taken action on climate, although not to the same level. Much of this work has involved collaboration with peer agencies both in the United States and abroad, as well as assigning or hiring staff to focus on climate change, the FSOC fact sheet notes .
The Federal Reserve, for example, is in the process of creating climate-related scenario analyzes that would be used to assess the resilience of the financial system to various climate outcomes.
Also important is the draft guidance released by two bank regulators—the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.—on how major banks should manage climate-related risks (ClimatewireApril 1).
While system-wide work is already underway, the FSOC stressed that addressing climate-related financial risk requires “additional data and methodologies that may be new to financial institutions, investors, market participants and the regulators”.
This is where the Office of Financial Investigation comes in.
By providing access to public climate data, “high-performance computing tools, and analytical and visualization software,” FSOC said, the center will allow regulators to integrate data on wildfires, crop conditions, precipitation and more into financial reporting. This, in turn, will allow them to gain a “more accurate view” of the relationship between climate change and financial risk.
Todd Phillips, who heads financial regulation at the Center for American Progress, a progressive think tank, said the office is an “ideal place” to collect, store and analyze climate risk data. That’s because the Financial Investigation Bureau was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to ensure that agencies have the information they need to properly monitor financial markets.
“All financial regulators will have to figure out how to incorporate climate-related risks into their activities, and having a central repository that they can go to makes a lot of sense,” Phillips said.
The FSOC meeting it is scheduled to start at 11:10 am today