23 March 20213 minute read

CFTC's new Climate Risk Unit: Another tool in the Biden Administration's "whole of government" campaign against climate change

On March 17, 2021, Rostin Behnam, Acting Chairman of the Commodity Futures Trading Commission (CFTC), announced the creation of a new interdivisional group called the Climate Risk Unit or the CRU which will focus on the derivates markets’ role in understanding and addressing climate-related risk and transitioning to a low-carbon or net-zero economy. As Mr. Behnam explained in a recent press release, "climate change poses a major threat to US financial stability, and I believe we must move urgently and assertively in utilizing our wide-ranging and flexible authorities to address emerging risks." Staff from across the CFTC will support the CRU, which represents the CFTC’s "next step in response to what has become a global call to action on tackling climate change." 

The CRU will focus on research and ongoing market and stakeholder outreach related to climate change and ESG. The CRU also plans to support the CFTC’s mission of managing climate-related financial risk by:

  • engaging with exchanges, clearinghouses, industry groups, and market participants in an ongoing dialogue on how to address climate-related market risks 
  • helping the CFTC understand how derivates can be used to address climate risks and facilitate the transition to a net-zero economy
  • establishing consistent standards, taxonomies, disclosures, and practices across derivatives products and markets, domestically and internationally, that may be used to reduce risk of climate change
  • develop climate-related market risk data resources and
  • initiate climate finance labs or regulatory sandboxes to enhance development of climate-related market risk tools, products, and services. 

The CRU could facilitate clean-energy finance and other efforts to address climate risks related to the commodities markets the CFTC regulates. This could be particularly important in helping market stakeholders better understand and address climate risks in their portfolios. Among these risks are severe weather events, geopolitical instability, and related financial shocks, all of which play an increasingly important role in investor decision making. The CFTC sees ensuring the market’s ability to value those risks as a natural extension of its mission "to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation." And with regulators around the world responding to investor demands for information on how climate change and ESG affects their portfolios, developing the tools investors need in that regard is essential to achieving the CFTC’s vision of being "the global standard for sound derivatives regulation."

With this move, the US joins governments across the globe in recognizing the vital role derivatives markets will play in supporting and developing new products and solutions to address climate and sustainability challenges. For further background on some of these financial products, please see the materials from our recent webinar on the relationship between green finance and ESG ratings, available here.  You may also enjoy our Sustainability and Environment, Social and Governance portal

Print