December 11, 2019 / 6:43 PM / a month ago

U.S. regulator homes in on climate risks to U.S. markets

FILE PHOTO: A wind-driven wildfire burns near power line tower in Sylmar, California, U.S., October 10, 2019. REUTERS/ Gene Blevins

SAN FRANCISCO (Reuters) - The first public report on climate-related risks to financial markets ever commissioned by a U.S. market regulator will be out in June, the head of the group charged with writing it said on Wednesday.

The report, by a 35-member panel formed last month by the Commodity Futures Trading Commission, “will address both the short-term financial risks that may be associated with the transition to a low carbon economy, as well as the current and future market and financial risks associated with the physical risks that will arise from a warming climate,” Bob Litterman, a partner at hedge fund Kepos Capital and the panel’s chair, said at a public meeting held at the CFTC’s Washington headquarters.

It will include policy recommendations on oversight, including disclosures and stress testing against climate events, as well as ideas for new products for hedging against climate risk, he said, adding, “Today the incentives around the world go in the wrong direction, and this has to change.”

Regulators in Europe have begun to weave climate risks into their supervision of markets and banks. But U.S. regulators have been slow to respond to the threats that a warming planet can pose to financial assets. These include frequent wildfires and destructive hurricanes which may jeopardize the value of assets that underlie the trillions of dollars bought and sold in the world’s biggest financial markets and the farmers, banks and insurers that use those markets.

The Trump administration has sought to undercut a broad swath of U.S. and state regulations aimed at combating climate change and limiting the carbon dioxide emissions that cause it.

In June, Rostin Behnam, one of two Democrats on the five-member CFTC, signaled he wanted to change that, announcing he would form a subcommittee to examine how climate change threatens not only the derivatives markets his agency oversees but the stability of the broader financial system.

“No one else in the public sector is doing this,” Behnam said in an interview this week. “I don’t view this as a partisan issue. I view this as a matter of importance for our country.”

The panel’s members are a broad group, including representatives from Goldman Sachs Group Inc, BP Plc, the Environmental Defense Fund, and the Dairy Farmers of America.

Other U.S. financial regulators are watching. Last month, Federal Reserve Governor Lael Brainard said she and her fellow central bankers “are particularly eager to learn from the work of our colleagues here and abroad,” including the CFTC panel.

Reporting by Ann Saphir in San Francisco; Editing by Matthew Lewis

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