On March 17, Commodity Futures Trading Commission (CFTC) Acting Chairman, Rostin Behnam, announced the establishment of the Climate Risk Unit (CRU), an interdivisional group focused on derivatives markets' role in addressing climate-related risk and transitioning to a low-carbon economy. This announcement follows the Securities Exchange Commission's (SEC) announcement of the creation of a Climate and Environmental, Social, and Governance (ESG) Task Force in the Division of Enforcement.
Behnam noted that 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." The CRU is intended to accelerate CFTC engagement in support of industry-led and market-driven processes in the climate and greater ESG space.
The CRU plans to support and develop new products and solutions that address climate and sustainability challenges by working with industry and policymakers to establish clear and consistent standards, taxonomies, practices and regulations.
The CFTC flagged five areas in which the CRU may take action. These include: (1) determining how to address climate-related market risks in an equitable way, (2) understanding the derivatives and related products being developed to address climate-related market risks and the transition to a net-zero economy, to help the CFTC identify how these products fit in with the agency's regulatory and supervisory role, and areas in which modifications can be made, (3) establishing consistent and clarified "standards, taxonomies, disclosures and practices across derivatives products and markets," (4) supporting the development of "relevant and reliable climate-related market risk data resources," and (5) evaluating whether tools "such as climate finance labs or regulatory sandboxes would enhance development of climate-related market risk tools, products and services."
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