The central message of this report is that United States of America financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks. This report begins with a fundamental finding—financial markets will only be able to channel resources efficiently to activities that reduce greenhouse gas emissions if an economy-wide price on carbon is in place at a level that reflects the true social cost of those emissions. Another central finding of this report is that climate change could pose systemic risks to the U.S. financial system. At the same time, this report finds that regulators should also be concerned about the risk of climate-related “sub-systemic” shocks.
Some of the key recommendations of this report (pp. vi-ix), are:
- Research arms of federal financial regulators should undertake research on the financial implications of climate-related risks.
- State insurance regulators should require insurers to assess how their underwriting activity and investment portfolios may be impacted by climate-related risks and, based on that assessment, require them to address and disclose these risks.
- Material climate risks must be disclosed under existing law, and climate risk disclosure should cover material risks for various time horizons.