Washington, D.C. (March 22, 2021) - On March 17, the Commodity Futures Trading Commission (CFTC or Commission) joined other federal agencies led by Biden Administration appointees in ramping up consideration of climate-related risks in matters under the Commission's jurisdiction. Stressing the need for a climate-resilient financial system, the CFTC's new Climate-Risk Unit (CRU) will focus on "the role of derivatives in understanding, pricing, and addressing climate-related risk and transitioning to a low-carbon economy."

Formation of the CRU will accelerate the CFTC's "engagement in support of industry-led and market-driven processes in the climate – and the larger ESG – space critical to ensuring that new products and markets fairly facilitate hedging, price discovery, market transparency, and capital allocation." As with similar programs launched by the Securities and Exchange Commission (see our previous alert from March 19), businesses affected by the CFTC's new initiative should consider active engagement to ensure informed and appropriate approaches are included in any new regulations, policies, or frameworks governing climate-related issues.

Building on previous efforts by Acting CFTC Chairman Rostin Behnam, who established the Commission's Market Risk Advisory Committee's Climate-Related Market Risk Subcommittee and requested its September 2020 report on Managing Climate Risk in the U.S. Financial System, the CRU will undertake research, engage in stakeholder outreach, and seek to play an active role in international discussions on analytics for measuring key climate and sustainability criteria.

The CFTC's announcement emphasizes one cutting-edge issue that is taking on increased importance in view of stepped-up disclosure policies and requirements, namely the need for "building [a] consensus for globally consistent standards, taxonomies, disclosures, and practices across derivatives and markets, as well as related clarity on regulatory, capital, and accounting standards." (The authors of this alert provided an in-depth analysis of the latest developments on this topic in a March 8 Bloomberg Law Insights article.)

These priorities shed light on where the CFTC is headed and highlight the importance of engagement with the Commission on these issues by companies in the derivatives and larger financial sectors. Lewis Brisbois' Sustainability and ESG Practice draws upon sophisticated expertise from a seasoned, multi-disciplinary complement of practitioners across the firm to provide clients with an integrated problem-solving team targeted to their specific opportunities and risk mitigation needs. The attorneys who comprise this practice regularly work with clients on compliance with ESG and climate change-related legal requirements under federal, state, and foreign law, and assist companies in optimizing knowledge of evolving standards for disclosure and reporting standards.

Originally Published by Lewis Brisbois, March 2021

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