CFTC Issues Request for Information on Climate-Related Financial Risk

On June 2, 2022, the Commodity Futures Trading Commission (“CFTC”) issued a Request for Information (“RFI”) to understand and better the oversight of climate-related financial risk that “may pertain to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants.” Responses to the RFI may be used for CFTC guidance, interpretations, policies, regulations, or Commission action

The RFI includes the following inquiries:

• Data

  • What type of data would help evaluate the climate-related financial risks?

  • Are there data sources that registered entities are currently using to assess climate-related financial risks?

  • What steps should the CFTC consider to have better access to “consistent and reliable data” and should the CFTC implement reporting requirements as to climate-related financial risks?

  • What steps can the CFTC take to better inform the public of its efforts with regard to climate-related financial risks?

• Scenario Analysis and Stress Testing

  • What tools would be useful to understand climate-related financial risks?

  • Are there common scenarios that the CFTC should consider incorporating into its oversight?

  • Should long-term stress testing be relevant to the CFTC oversight, or should other “more relevant” scenarios be utilized?

  • Should the CFTC implement stress tests for climate-related financial risks in risks management requirements?

• Risk Management

  • How should registrant’s risk management frameworks, the CFTC’s existing regulations and guidance, and the DCO’s risk management frameworks be adapted to address climate-related financial risks?

  • Should the CFTC’s minimum capital and liquidity requirements be amended to recognize climate-related financial risks?

• Disclosure

  • Should disclosure requirements be amended to reflect to “aid market participants in better assessing climate-related [financial] risks?”

  • What disclosures, in addition to the Task Force on Climate-Related Financial Disclosures' (“TCFD”) four core elements of governance, strategy, risk management, and metrics and targets, should be implemented?

  • Should a new registrant category of climate-related risk disclosure requirements based on the TCFD's four core elements be established?

  • Should registered entities and registrants be required to disclose information relating to GHG emissions?

• Product Innovation

  • What derivatives products are currently used to manage, facilitate price discovery for, and/or allocate capital to projects relating to climate-related financial risks?

  • Are there any potential innovations in climate-risk-related technology that could impact the derivatives CFTC oversees?

  • What impact does the pricing and terms of other products and the risks posed to transactions in commodities have on products relating to climate-related financial risks?

• Voluntary Carbon Markets

  • Are there ways in which the Commission could enhance the integrity of voluntary carbon markets and foster transparency, fairness, and liquidity in those markets?

  • Are there aspects of the voluntary carbon markets that are susceptible to fraud and manipulation and/or merit enhanced Commission oversight?

  • Should a registration framework be created for the voluntary carbon markets “to enhance the integrity of the voluntary carbon markets?”

• Digital Assets

  • What, if any, climate-related financial risks are created by digital asset markets and should these risks be addressed by the CFTC?

• Financially Vulnerable Communities

  • What factors should the CFTC consider in analyzing climate-related financial risks on households and communities—specifically, those which are considered “financially vulnerable”—and what steps should be taken to mitigate these risks?

• Public-Private Partnerships/Engagement

  • What mechanisms, expert collaboration, or literature and research, should the CFTC consider or make available when attempting to establish a public-private partnership to address climate-related financial risks?

  • Should a committee similar to the Alternative Reference Rate Committee that was formed to assist private entities in the LIBOR transition, be established to assess climate-related financial risks determinations?

• Capacity and Coordination

  • “What steps should the Commission consider in order to expand its capacity to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability?”

  • How should the agency facilitate international coordination with regard to climate-related financial risks response?

In accordance with the RFI’s publication, several Commissioners published statements expressing their support for and their concerns regarding the CFTC’s actions. Commissioner Mersinger and Commissioner Pham stated that they are generally in support of these risk mitigating efforts. However, they are concerned that the CFTC’s actions may be beyond the scope of its authority under Commodity Exchange Act as the CFTC’s request is not limited to just the derivatives market.

Regardless of these concerns, the CFTC’s RFI remains in force and the period for public comment will remain open until August 8, 2022.