CFTC Commissioner Rostin Behnam warned of the market risks associated with climate change. He argued that due to its unpredictable nature and severe consequences, "climate change ought to be brought to the forefront of our policy agenda."

In a statement at the 56th Crop Insurance and Reinsurance Annual Meeting, Mr. Behnam highlighted several challenges facing the CFTC Climate-Related Financial Market Risk Subcommittee, including:

  • extreme weather causing bank loan losses due to business interruptions and bankruptcies;
  • the decrease of both (i) the creditworthiness of borrowers and (ii) the value of loan collateral due to defaults;
  • the sudden "correction" of property prices to reflect climate risks, causing losses to financial institutions and hurting lending capabilities; and
  • local and regional market disruptions weakening market resiliency.

Citing market disruptions resulting from "more severe and frequent weather events," Mr. Behnam called on insurers, among others, to "increase their focus on climate risk to investments," and stated that "[a]ction is required now" to address these risks. Mr. Behnam called on regulators to evoke "core policy responses," noting the increase in awareness and analyses of climate risk within the private sector and across multiple agencies on a global scale. He reasoned that a standardized taxonomy and language for defining financial instruments has resulted in a "shared focus" on addressing risks within the financial sector. Further, Mr. Behnam advocated for:

  • focusing the allocation of capital towards a low-carbon economy and increased disclosure and reporting requirements;
  • aligning incentives for climate risk-related best practices and governance measures; and
  • evaluating resiliency through tools such as scenario analysis and stress testing.


To fulfill their regulatory function best, CFTC Commissioners may want to stay focused on the derivatives markets. For well over a century, the futures markets have allowed farmers and food producers to hedge against the very kind of weather-related events that Commissioner Behnam describes. Indeed, for a good illustration of this, see In re Biefeldt, CFTC Docket No. 96-1 (Dec. 2, 2004), where a trader during the 1993 growing season took advantage of widespread flooding in the Midwest (the kind of wet conditions that Commissioner Behnam warns us about) by buying corn futures in large quantities.

The danger is that the various agencies of government end up pushing interests that are not central to, and perhaps even divorced from, the job of the agency. Such distractions, however well-intended, detract from the ability of the government to accomplish its various missions.

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