To support derivatives markets in addressing the threat of global warming, the U.S. Commodity Futures Trading Commission (CFTC) is launching a new climate risk unit.
The CFTC has created an agency-wide, inter-divisional group to lead its work on the role of derivatives markets in pricing climate risk and facilitating the transition to a low-carbon economy.
The new Climate Risk Unit (CRU) is intended to ensure that new derivatives products and markets “fairly facilitate hedging, price discovery, market transparency, and capital allocation.”
The new effort to address climate risk at the CFTC follows steps by the U.S. Securities and Exchange Commission (SEC) to enhance its work in this area too, reflecting the new U.S. federal government’s commitment to address climate change.
Among other initiatives, the CFTC’s CRU may facilitate discussions with exchanges, clearinghouses, industry groups and market participants regarding new and emerging climate risks and the impact of extreme weather; identify possible reforms; and participate in global efforts to develop consistent disclosure standards, market practices, and regulatory, capital and accounting standards.
The CRU will also consider whether climate finance labs or regulatory sandboxes “would enhance development of climate-related market risk tools, products, and services.”
“The Covid-19 pandemic as well as increasingly severe weather and environmental impacts have firmly established the role of financial regulators in providing decisive leadership in times of market stress,” Rostin Behnam, acting chairman of the CFTC, said in a statement.
“Climate change poses a major threat to U.S. financial stability, and I believe we must move urgently and assertively in utilizing our wide-ranging and flexible authorities to address emerging risks. The CFTC’s unique mission focused on risk mitigation and price discovery puts us on the front lines of this effort,” Benham added.