CFTC Sets Up Climate Risk Unit to Accelerate Engagement in ESG Space

The formation of this Unit follows years of climate leadership at the CFTC by Behnam, who spearheaded the effort to establish the Market Risk Advisory Committee’s Climate-Related Market Risk Subcommittee and requested the September 2020 report on managing climate risk in the U.S. financial system. As the U.S. joins governing bodies worldwide in recognizing the need to reduce carbon emissions, the derivatives markets regulated by CFTC will play a vital role in supporting and developing new products and solutions that address climate and sustainability challenges. In support of these efforts, it is widely recognized that globally consistent standards, taxonomies, and practices will be critical as the industry and policymakers partner and guide their economies through the transition.

By leveraging in-house expertise in the backdrop of a history of developing and enforcing standards and policies alongside exchanges and self-regulatory organizations, the Climate Risk Unit of CFTC will ensure that the agency remains a helpful participant in all relevant discussions. In addition to undertaking research and engaging in ongoing market and stakeholder outreach, in support of the CFTC mission, the Unit may facilitate the following:

• Through proactive engagement with the exchanges, clearinghouses, industry groups, and market participants, an active and ongoing dialog regarding new and emerging risks related to climate change and the impact of extreme and increasingly frequent and severe weather events and how such climate-related market risks are being or ought to be addressed in a fair and equitable way
• A better and more complete understanding in CFTC of the derivatives and related products being developed to address climate-related market risks and to facilitate the transition to a net-zero economy and of how such products fit within and interact with the regulatory and supervisory framework of CFTC, including the identification of areas where refinements or modifications could be made either to the products or to the CFTC’s approaches
• Increased participation in domestic and international fora aimed at building consensus for consistent standards, taxonomies, disclosures, and practices across derivatives products and markets as well as related clarity on regulatory, capital, and accounting standards
• Coordinated efforts to support the development of relevant and reliable climate-related market risk data resources
• Consideration and evaluation of whether tools such as climate finance labs or regulatory sandboxes would enhance development of climate-related market risk tools, products, and services.

Keywords: Americas, US, Banking, Securities, Climate Change Risk, Climate Risk Unit, ESG, Sustainable Finance, Derivatives, Cross-Border Cooperation, CFTC