Climate Change Financial Risk Act of 2021
This bill addresses climate change risk and its potential impact on the financial system.
The Federal Reserve Board must develop financial risk analyses relating to climate change for specified large nonbank financial companies and bank holding companies. Specifically, these entities will be evaluated every two years on whether they have the capital necessary to absorb financial losses that would arise under several different climate change risk scenarios.
The bill also establishes the Climate Risk Scenario Technical Development Group to provide recommendations to the board regarding such climate change risk scenarios, and determine the financial and economic risks of these scenarios.
The Financial Stability Oversight Council of the Department of the Treasury must establish a committee to assist it in identifying risks and responding to threats to the financial system as a result of climate change.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3571 Introduced in House (IH)]
<DOC>
117th CONGRESS
1st Session
H. R. 3571
To require the Board of Governors of the Federal Reserve System, in
consultation with the heads of other relevant Federal agencies, to
develop and conduct financial risk analyses relating to climate change,
and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 28, 2021
Mr. Casten (for himself, Mr. Peters, Mr. Levin of California, Mr.
Quigley, and Mr. Grijalva) introduced the following bill; which was
referred to the Committee on Financial Services, and in addition to the
Committee on Energy and Commerce, for a period to be subsequently
determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To require the Board of Governors of the Federal Reserve System, in
consultation with the heads of other relevant Federal agencies, to
develop and conduct financial risk analyses relating to climate change,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Climate Change Financial Risk Act of
2021''.
SEC. 2. SENSE OF CONGRESS.
It is the sense of Congress that--
(1) if current trends continue, average global temperatures
are likely to reach 1.5 degrees Celsius above pre-industrial
levels between 2030 and 2050;
(2) global temperature rise has already resulted in an
increased number of heavy rainstorms, coastal flooding events,
heat waves, wildfires, and other extreme events;
(3) since 1980--
(A) the number of extreme weather events per year
that cost the people of the United States more than
$1,000,000,000 per event, accounting for inflation, has
increased significantly; and
(B) the total cost of extreme weather events in the
United States has exceeded $1,875,000,000,000;
(4) as physical impacts from climate change are manifested
across multiple sectors of the economy of the United States--
(A) climate-related economic risks will continue to
increase;
(B) climate-related extreme weather events will
disrupt energy and transportation systems in the United
States, which will result in more frequent and longer-
lasting power outages, fuel shortages, and service
disruptions in critical sectors across the economy of
the United States;
(C) projected increases in extreme heat conditions
will lead to decreases in labor productivity in
agriculture, construction, and other critical economic
sectors;
(D) food and livestock production will be impacted
in regions that experience increases in heat and
drought and small rural communities will struggle to
find the resources needed to adapt to those changes;
and
(E) sea level rise and more frequent and intense
extreme weather events will--
(i) increasingly disrupt and damage private
property and critical infrastructure; and
(ii) drastically increase insured and
uninsured losses;
(5) advances in energy efficiency and renewable energy
technologies, as well as climate policies and shifting societal
preferences, will--
(A) reduce global demand for fossil fuels; and
(B) expose transition risks for fossil fuel
companies and investors, and for companies and
investors in other energy-intensive industries, which
could include trillions of dollars of stranded assets
around the world;
(6) climate change poses uniquely far-reaching risks to the
financial services industry, including with respect to credit,
counterparty, and market risks, due to the number of sectors
and locations impacted and the potentially irreversible scale
of damage;
(7) financial institutions must take a consistent approach
to assessing climate-related financial risks and incorporating
those risks into existing risk management practices, which
should be informed by scenario analysis;
(8) the Board of Governors conducts annual assessments of
the capital adequacy and capital planning practices of the
largest and most complex banking organizations (referred to in
this section as ``stress tests'') in order to promote a safe,
sound, and efficient banking and financial system;
(9) as of the date of enactment of this Act, the stress
tests conducted by the Board of Governors are not designed to
reflect the physical risks or transition risks posed by climate
change;
(10) the Board of Governors--
(A) has the authority to take into account the
potentially systemic impact of climate-related risks on
the financial system; and
(B) should develop new analytical tools with longer
time horizons to accurately assess and manage the risks
described in subparagraph (A); and
(11) the Climate-Related Market Risk Subcommittee of the
Commodity Futures Trading Commission has identified the
importance of researching ``climate-related `sub-systemic'
shocks to financial markets and institutions in particular
sectors and regions of the United States''.
SEC. 3. DEFINITIONS.
In this Act:
(1) Bank holding company.--The term ``bank holding
company'' has the meaning given the term in section 102(a) of
the Financial Stability Act of 2010 (12 U.S.C. 5311(a)).
(2) Board of governors.--The term ``Board of Governors''
means the Board of Governors of the Federal Reserve System.
(3) Climate science leads.--The term ``climate science
leads'' means--
(A) the Administrator of the National Oceanic and
Atmospheric Administration;
(B) the Administrator of the Environmental
Protection Agency;
(C) the Secretary of Energy;
(D) the Administrator of the National Aeronautics
and Space Administration;
(E) the Director of the United States Geological
Survey;
(F) the Secretary of the Interior; and
(G) the head of any other Federal agency that the
Board of Governors determines to be appropriate.
(4) Covered entity.--The term ``covered entity'' means--
(A) a nonbank financial company or bank holding
company that has not less than $250,000,000,000 in
total consolidated assets; and
(B) a nonbank financial company or bank holding
company--
(i) that has not less than $100,000,000,000
in total consolidated assets; and
(ii) with respect to which the Board of
Governors determines the application of
subparagraph (C) of section 165(i)(1) of the
Financial Stability Act of 2010 (12 U.S.C.
5365(i)(1)), as added by section 6 of this Act,
is appropriate--
(I) to--
(aa) prevent or mitigate
risks to the financial
stability of the United States;
or
(bb) promote the safety and
soundness of the company; and
(II) after taking into
consideration--
(aa) the capital structure,
riskiness, complexity,
financial activities, and size
of the company, including the
financial activities of any
subsidiary of the company; and
(bb) any other risk-related
factor that the Board of
Governors determines to be
appropriate.
(5) Nonbank financial company.--The term ``nonbank
financial company'' has the meaning given the term in section
102(a)(4)(C) of the Financial Stability Act of 2010 (12 U.S.C.
5311(a)(4)(C)).
(6) Physical risks.--The term ``physical risks'' means
financial risks to assets, locations, operations, or value
chains that result from exposure to physical climate-related
effects, including--
(A) increased average global temperatures;
(B) increased severity and frequency of extreme
weather events;
(C) increased flooding;
(D) sea level rise;
(E) ocean acidification;
(F) increased severity and frequency of heat waves;
(G) increased frequency of wildfires;
(H) decreased arability of farmland; and
(I) decreased availability of fresh water.
(7) Surveyed entity.--The term ``surveyed entity'' means a
nonbank financial company supervised by the Board of Governors,
or a bank holding company, that--
(A) has total consolidated assets of not less than
$10,000,000,000; and
(B) is not a covered entity.
(8) Technical development group.--The term ``Technical
Development Group'' means the Climate Risk Scenario Technical
Development Group established under section 4.
(9) Transition risks.--The term ``transition risks'' means
financial risks that are attributable to climate change
mitigation and adaptation, including efforts to reduce
greenhouse gas emissions and strengthen resilience to the
impacts of climate change, including--
(A) costs relating to--
(i) international treaties and agreements;
(ii) Federal, State, and local policies;
(iii) new technologies;
(iv) changing markets;
(v) reputational impacts relevant to
changing consumer behavior; and
(vi) litigation; and
(B) a loss in the value, or the stranding, of
assets due to any of the costs described in clauses (i)
through (vi) of subparagraph (A).
(10) Value chain.--The term ``value chain''--
(A) means the total lifecycle of a product or
service, both before and after production of the
product or service, as applicable; and
(B) may include the sourcing of materials,
production, and disposal with respect to the product or
service described in subparagraph (A).
SEC. 4. CLIMATE RISK SCENARIO TECHNICAL DEVELOPMENT GROUP.
(a) Establishment.--The Board of Governors shall establish a
technical advisory group to be known as the Climate Risk Scenario
Technical Development Group.
(b) Membership.--
(1) Composition.--The Technical Development Group shall be
composed of 10 members--
(A) 5 of whom shall be climate scientists; and
(B) 5 of whom shall be economists, with expertise
in either the United States financial system or the
risks posed by climate change.
(2) Selection.--The Board of Governors shall select the
members of the Technical Development Group after consultation
with the climate science leads.
(c) Duties.--The Technical Development Group shall--
(1) provide recommendations to the Board of Governors
regarding the development of, and updates to, the climate
change risk scenarios under section 5;
(2) after the establishment of the climate change risk
scenarios under section 5, determine the financial and economic
risks resulting from those scenarios;
(3) make any final work product and any data sets or other
inputs used in the development of the final work product,
publicly available; and
(4) provide technical assistance to covered entities in
assessing physical risks or transition risks.
(d) Inapplicability of Federal Advisory Committee Act.--The Federal
Advisory Committee Act (5 U.S.C. App.) shall not apply with respect to
the Technical Development Group.
SEC. 5. DEVELOPMENT AND UPDATING OF CLIMATE CHANGE RISK SCENARIOS.
(a) In General.--
(1) Initial development.--Not later than 1 year after the
date of enactment of this Act, the Board of Governors, in
coordination with the climate science leads, and taking into
consideration the recommendations of the Technical Development
Group, shall develop 3 separate climate change risk scenarios
as follows:
(A) One scenario that assumes an average increase
in global temperatures of 1.5 degrees Celsius above
pre-industrial levels.
(B) One scenario that assumes an average increase
in global temperatures of 2 degrees Celsius above pre-
industrial levels.
(C) One scenario that--
(i) assumes the likely and very likely
average increase in global temperatures that
can be expected, taking into consideration the
extent to which national policies and actions
relating to climate change have been
implemented, as of the date on which the
scenario is developed, or on which the scenario
is updated under paragraph (2), as applicable;
and
(ii) does not take into consideration
commitments for policies and actions relating
to climate change that, as of the applicable
date described in clause (i), have not been
implemented.
(2) Updates.--After the initial development of the climate
change risk scenarios under paragraph (1), the Board of
Governors, in coordination with the climate science leads, and
taking into consideration the recommendations of the Technical
Development Group, shall update those scenarios once every 3
years.
(3) International coordination.--In developing and updating
the 3 scenarios required under this subsection, the Board of
Governors shall take into consideration analytic tools and best
practices developed by international banking supervisors
relating to climate risks and scenario analysis in an effort to
develop consistent and comparable data-driven scenarios.
(4) Recommendations.--If the Technical Development Group
determines that the average increase in global temperatures
described in subparagraph (A) or (B) of paragraph (1) is no
longer scientifically valid, the Technical Development Group
may recommend that the Board of Governors, in coordination with
the climate science leads, update the average increase in
global temperatures described in the applicable subparagraph to
reflect the most current assessment of climate change science.
(b) Considerations.--In developing and updating each of the 3
scenarios required under subsection (a), the Board of Governors, in
coordination with the climate science leads, shall account for physical
risks and transition risks that may disrupt business operations across
the global economy, including through--
(1) disruptions with respect to--
(A) the sourcing of materials;
(B) production; and
(C) the disposal of products and services;
(2) changes in the availability and prices of raw materials
and other inputs;
(3) changes in agricultural production and with respect to
food security;
(4) direct damages to fixed assets;
(5) increases in costs associated with insured or uninsured
losses;
(6) changes in asset values;
(7) impacts on--
(A) aggregate demand for products and services;
(B) labor productivity;
(C) asset liquidity; and
(D) credit availability;
(8) mass migration and increases in disease and mortality
rates;
(9) international conflict, as such conflict relates to
global economic activity and output; and
(10) changes in any other microeconomic or macroeconomic
condition that the Board of Governors, in coordination with the
climate science leads, determines to be relevant.
SEC. 6. CLIMATE-RELATED ENHANCED SUPERVISION FOR CERTAIN NONBANK
FINANCIAL COMPANIES AND BANK HOLDING COMPANIES.
Section 165(i)(1) of the Financial Stability Act of 2010 (12 U.S.C.
5365(i)(1)) is amended--
(1) in subparagraph (B)(i), by inserting ``except as
provided in subparagraph (C)(ii)(I),'' before ``shall
provide''; and
(2) by adding at the end the following:
``(C) Biennial tests required.--
``(i) Definitions.--In this subparagraph--
``(I) the term `capital
distribution' has the meaning given the
term in section 225.8(d)(4) of title
12, Code of Federal Regulations, as in
effect on the date of enactment of this
subparagraph;
``(II) the term `capital policy'
has the meaning given the term in
section 225.8(d)(7) of title 12, Code
of Federal Regulations, as in effect on
the date of enactment of this
subparagraph; and
``(III) the terms `climate science
leads' and `covered entity' have the
meanings given those terms in section 3
of the Climate Change Financial Risk
Act of 2021.
``(ii) Tests.--
``(I) In general.--Subject to the
other requirements of this clause, the
Board of Governors, in coordination
with the appropriate primary financial
regulatory agencies and the climate
science leads, shall conduct biennial
analyses in which each covered entity
is subject to evaluation, under an
adverse set of conditions, of whether
that covered entity has the capital, on
a total consolidated basis, necessary
to absorb financial losses that would
arise under each climate change risk
scenario developed under section 5 of
the Climate Change Financial Risk Act
of 2021.
``(II) Initial tests.--With respect
to each of the first 3 analyses
conducted under subclause (I)--
``(aa) the covered entity
to which such an analysis
applies shall not be subject to
any adverse consequences as a
result of the analysis; and
``(bb) the Board of
Governors shall--
``(AA) not later
than 60 days after the
date on which the Board
of Governors completes
each such analysis,
make a summary of the
analysis publicly
available; and
``(BB) submit a
copy of the results of
the analysis to the
Committee on Banking,
Housing, and Urban
Affairs of the Senate
and the Committee on
Financial Services of
the House of
Representatives.
``(III) Climate risk remediation
plan.--
``(aa) In general.--Except
with respect to the first
analysis conducted under
subclause (I), each covered
entity shall, before being
subject to an analysis under
that subclause, submit to the
Board of Governors a
remediation plan with respect
to climate risk planning
(referred to in this subclause
as a `climate risk remediation
plan'), which shall be based on
the results of the most
recently conducted analysis of
the covered entity under that
subclause.
``(bb) Contents.--Each
climate risk remediation plan
required under item (aa) shall
include--
``(AA) a capital
policy with respect to
climate risk planning;
and
``(BB) qualitative
and quantitative
targets for balance
sheet and off-balance
sheet exposures, and
other business
operations, that remedy
vulnerabilities
identified in the most
recently conducted
analysis of the
applicable covered
entity under subclause
(I).
``(cc) Rejection.--Except
as provided in subclause
(II)(aa), the Board of
Governors may object to a
climate risk remediation plan
submitted by a covered entity
under item (aa) if the Board of
Governors determines that--
``(AA) the covered
entity has not
demonstrated a
reasonable plan to
maintain capital above
each minimum regulatory
capital ratio on a pro
forma basis under the
adverse set of
conditions described in
subclause (I);
``(BB) the climate
risk remediation plan
is otherwise not
reasonable or
appropriate;
``(CC) the
assumptions and
analysis underlying the
climate risk
remediation plan, or
the methodologies and
practices that support
the climate risk
remediation plan, are
not reasonable or
appropriate; or
``(DD) the climate
risk remediation plan
otherwise constitutes
an unsafe or unsound
practice.
``(dd) General distribution
limitation.--If the Board of
Governors, under item (cc),
objects to a climate risk
remediation plan submitted by a
covered entity under item (aa),
the covered entity may not make
any capital distribution, other
than a capital distribution
arising from the issuance of a
regulatory capital instrument
eligible for inclusion in the
numerator of a minimum
regulatory capital ratio.''.
SEC. 7. SUB-SYSTEMIC EXPLORATORY SURVEY.
(a) Development of Survey.--The Board of Governors, in consultation
with the Comptroller of the Currency and the Board of Directors of the
Federal Deposit Insurance Corporation, shall develop an exploratory
survey to assess--
(1) the ability of surveyed entities, including
agricultural banks, community banks, and other financial
institutions with a significant concentration of business
activities in certain geographical areas or industries, to
withstand each climate risk scenario developed under section 5;
and
(2) how surveyed entities plan to make adaptations to the
business models and capital planning of those entities in
response to the risks presented in each climate change risk
scenario developed under section 5.
(b) Administration of Survey.--
(1) Initial administration.--
(A) In general.--Not later than 1 year after the
completion of the first analysis under subparagraph (C)
of section 165(i)(1) of the Financial Stability Act of
2010 (12 U.S.C. 5365(i)(1)), as added by section 6 of
this Act, the Board of Governors shall administer the
survey developed under subsection (a) to each surveyed
entity.
(B) Assessment and report.--Not later than 18
months after the date on which the Board of Governors
completes the administration of the survey under
subparagraph (A), the Board of Governors shall--
(i) assess the responses to the survey; and
(ii) publicly release a report that
summarizes the results of the survey, which
shall include the analysis of the Board of
Governors regarding whether the planned actions
of the surveyed entities to which the survey
was administered, in the aggregate--
(I) are plausible; and
(II) would be effective.
(2) Subsequent administration.--
(A) In general.--After the release of the report
required under paragraph (1)(B)(ii), the Board of
Governors shall, on a biennial basis, administer to
each surveyed entity the survey developed under
subsection (a).
(B) Subsequent report.--Not later than 180 days
after the date on which each survey administered under
subparagraph (A) is completed, the Board of Governors
shall publicly release a report that summarizes the
results of the survey, which shall include the analysis
described in paragraph (1)(B)(ii).
(c) Effect of Survey Participation.--
(1) In general.--With respect to a surveyed entity to which
any survey under this section is administered--
(A) subject to paragraph (2), the entity shall not
be subject to any adverse consequence on the basis of a
response provided by the entity to the survey; and
(B) in any report released with respect to the
survey, the Board of Governors may not identify any
individual response submitted by the entity to the
survey.
(2) Rule of construction.--Nothing in paragraph (1)(A) may
be construed to preclude the Board of Governors from pursuing
an enforcement action against a surveyed entity because of a
violation discovered by the Board of Governors during an
examination of the surveyed entity that is independent of a
survey administered under this section.
SEC. 8. FINANCIAL STABILITY OVERSIGHT COUNCIL.
(a) In General.--The Financial Stability Oversight Council shall
establish a committee of the Council that shall support the Council in
identifying risks to, and in responding to emerging threats to, the
stability of the United States financial system as a result of climate
change.
(b) Responsibilities.--
(1) Committee.--The committee established under subsection
(a) shall, not later than 1 year after the completion of the
first analysis required under subparagraph (C) of section
165(i)(1) of the Financial Stability Act of 2010 (12 U.S.C.
5365(i)(1)), as added by section 6 of this Act, and in
consultation with the Office of Financial Research, submit to
Congress an assessment of the risk posed by climate change to
the efficiency, competitiveness, and stability of the United
States financial system as a whole.
(2) Council.--For each year after the year in which the
assessment required under paragraph (1) is submitted, the
Financial Stability Oversight Council shall include in the
annual report required under section 112(a)(2)(N) of the
Financial Stability Act of 2010 (12 U.S.C. 5322(a)(2)(N)) an
update to that assessment.
(c) Composition.--The committee established under subsection (a)
shall be composed of--
(1) the Chairman of the Board of Governors;
(2) the Secretary of the Treasury;
(3) the Comptroller of the Currency;
(4) the Chairperson of the Board of Directors of the
Federal Deposit Insurance Corporation;
(5) the Chairman of the Securities and Exchange Commission;
(6) the Chairperson of the Commodity Futures Trading
Commission; and
(7) any other voting or nonvoting members that the
Financial Stability Oversight Council determines to be
appropriate.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Subcommittee on Environment and Climate Change.
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