Climate-related Financial Risk: 2023 Staff Progress Report

This is a progress report from the staff of Council member agencies that participate in the Climate-related

Financial Risk Committee (CFRC). The report represents only the views of staff. The Council has expressed no

view regarding the analysis, findings, or conclusions contained herein.

Climate-related Financial Risk:

2023 Staff Progress Report

July 28, 2023

Table of Contents

1. Executive Summary .................................................................................................................................................2

2. Introduction ................................................................................................................................................................3

3. Building Capacity and Expanding Eorts to Address Climate-related Financial Risks .....................4

Box A: Capacity-building Eorts

....................................................................................................................5

4. Assessing Climate-related Financial Risks ......................................................................................................6

4.A. Scenario Analysis

....................................................................................................................................... 6

a. Background on CSA ........................................................................................................................6

b. Agency Eorts on Scenario Analysis .........................................................................................7

Box B: Federal Reserve Pilot CSA Exercise ..................................................................................8

4.B. Risk Assessment

........................................................................................................................................9

a. Risk Indicators ....................................................................................................................................11

b. Next Steps for the Development of Risk Indicators ............................................................ 14

4.C. Agency Eorts on Assessing and Mitigating Climate-related Financial Risk

....................... 14

Box C: Principles for Climate-related Financial Risk Management for Large

Financial Institutions ........................................................................................................................... 15

5. Climate-related Data and Methodological Gaps ......................................................................................... 15

5.A. Building the Infrastructure for Data Sharing

.................................................................................... 15

Box D: Climate Data and Analytics Hub and Joint Analysis Data

Environment (JADE) ............................................................................................................................ 15

5.B. Identifying Shared Data Needs

........................................................................................................... 16

Box E: Enhancing Public Climate-related Disclosures ..............................................................17

6. Next Steps: Continuing to Enhance Coordination and Build Capacity on Climate-related

Financial Risks ..........................................................................................................................................................17

1. Executive Summary

In October 2021, the Financial Stability Oversight Council (FSOC or Council) published its Report on

Climate-Related Financial Risk (Climate Report),

which identied climate change as an emerging risk

to nancial stability. e Climate Report also included a set of recommendations for the Council and

its member agencies

to bolster the resiliency of the nancial system to climate-related risk. Since the

publication of the Climate Report, the Council and its members have made progress in advancing these

recommendations, including by taking signicant actions to address capacity building, disclosure, data,

and assessment and mitigation of risks. is CFRC Sta Progress Report, written by the sta of the Council

members who participate in the Council’s Climate-related Financial Risk Committee (CFRC), provides an

update on these eorts since the publication of the 2021 Climate Report. is report is a follow-up to the fact

sheet on agency progress

published last year.

e sta-level CFRC serves as an active forum for interagency information sharing, coordination, and

capacity building on climate-related nancial risks. rough individual agency action and coordination

through the CFRC, there have been notable developments in the past year among the major thematic areas

of the Climate Report, including the following:

Filling climate-related data and methodological gaps:

• e Oce of Financial Research (OFR) launched a new platform—the Joint Analysis Data

Environment (JADE)

—to improve regulators’ access to data, high-performance computing

tools, and analytical and visualization software. Two CFRC working groups coordinated among

Council member agencies to ensure that the data and analytical tools needed by the agencies are

incorporated into JADE. Once fully operational, JADE will support broad-based nancial-stability

research by providing a platform to access and analyze a broad spectrum of nancial and other

relevant data and by facilitating data sharing and collaboration among Council member agencies.

e OFR anticipates that it will release the initial version of JADE during the second half of 2023.

• On October 18, 2022, the U.S. Department of the Treasury’s Federal Insurance Oce (FIO) issued

a request for comment

on a proposed collection of data from property and casualty insurers

regarding current and historical underwriting data on homeowners’ insurance at the ZIP Code level

to assess the potential for major disruptions of private insurance coverage in regions of the country

that are particularly vulnerable to the impacts of climate change. is proposed data collection

would provide consistent, granular, and comparable insurance data to help assess the challenges to

insurance availability in certain areas of the country.

Assessing and mitigating risks:

• e dedicated CFRC climate scenario analysis (CSA) working group composed of Council member

sta provides a forum for Council members—including the Federal Reserve, the Commodity Futures

Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC), the Federal

Housing Finance Agency (FHFA), and the Oce of the Comptroller of the Currency (OCC)—to

explore the use of scenario analysis by regulators and regulated rms.

• e dedicated CFRC Risk Assessment Working Group (RAWG), which is composed of Council

member sta, is developing a robust framework to identify and assess climate-related nancial risk

and is iteratively identifying a preliminary set of risk indicators for banking, insurance, and nancial

markets.

• Many agencies are also taking individual actions on assessing and mitigating risk. For example,

OCC,

FDIC,

and the Federal Reserve

each released for public feedback or comment a set of draft

principles for climate-related nancial risk management for certain large nancial institutions. ese

agencies have indicated their intention to work together to promote consistency in the supervision of

large banks through nal interagency guidance, after carefully reviewing comments received.

• FIO released a report titled “Insurance Supervision and Regulation of Climate-Related Risks,”

which

assesses climate-related issues and gaps in the supervision and regulation of insurers and issues a

set of policy recommendations.

• e Federal Reserve launched a pilot CSA exercise for six large bank holding companies.

e Council and its member agencies continue to view climate-related nancial risk as a key priority and

will advance the recommendations of the Climate Report. As an interagency body, the Council plays an

important role in assessing nancial-stability risks that ow across the nancial system. Sta from member

agencies have highlighted cross-cutting issues including coordinating on data and risk assessment, which

will continue to be a focus area. In addition, the intersection of physical risk, real estate, banking, insurance,

and household nances is emerging as a shared area of interest and potential future work. As detailed in the

Council’s 2022 Annual Report,

climate-related events like wildres and ooding may result in damage that

can reduce the value of real estate, reducing insurance protability via higher-than-expected underwriting

losses,

and aecting the cost and availability of insurance coverage for households and businesses,

with

the potential to spill over to other parts of the nancial system and real economy. Given the critical role

of real estate in the economy and the nancial system and how it aects the remits of multiple Council

member agencies, the intersection of physical risk, real estate, and insurance is emerging as a particular

priority for future analysis for the CFRC.

2. Introduction

In October 2021, the Council published its Climate Report,

which included 35 recommendations to U.S.

nancial regulators on how to identify and address climate-related risks to the nancial system.

e Climate Report identied climate change as an emerging risk to nancial stability. Climate-related

nancial risks can be grouped into two broad categories: physical risks and transition risks. Physical risks

refer to the harm to people and property from acute, climate-related disaster events such as hurricanes,

wildres, oods, and heatwaves, as well as longer-term chronic phenomena like higher average

temperatures, changes in precipitation patterns, sea level rise, and ocean acidication. Transition risks refer

to disruptions that may occur from a shift to a low‒greenhouse gas economy. e physical and transition

risks associated with climate change could contribute to nancial instability through numerous channels,

including nancial intermediaries experiencing signicant losses, the impairment of nancial market

functioning, the sudden and disruptive repricing of assets, or legal risks. ese physical and transition

risks can manifest as traditional risks to nancial institutions such as credit risk, liquidity risk, market risk,

and operational risk. As such, they are a familiar focus of prudential supervision and regulation by FSOC

members and can be integrated into existing nancial stability frameworks.

Since the publication of the Climate Report, the Council and its members have made progress in advancing

the recommendations identied in the Climate Report, including signicant actions taken by members to

address capacity building, disclosure, data, and assessment and mitigation of risks. is CFRC Sta Progress

Report provides an update on these eorts since the Climate Report’s publication, focusing primarily on

interagency eorts through the Council and certain key developments from member agencies. is report is

organized around the main thematic areas of the Climate Report—building capacity (Section 3), assessing

and mitigating risks (Section 4), and lling climate-related data and methodological gaps (Section 5).

3. Building Capacity and Expanding Eorts to Address

Climate-related Financial Risks

Over the past year, the Council and its members have increased their eorts to build capacity and

increase expertise to address climate-related nancial risks. Key among these eorts, and consistent with

Recommendation 1.1 of the Council’s Climate Report,

is the Council’s formation of a new sta-level

committee in February 2022, the CFRC, with representation from all 15 Council member agencies. e

CFRC serves as an active forum for interagency information sharing, coordination, and capacity building.

Given the gaps in climate-related nancial data identied in the Climate Report, the continuing evolution in

methodologies to assess risk, and the challenges of translating climate data into potential nancial impacts,

the CFRC plays an important role in enabling Council members to learn about emerging best practices from

one another.

To facilitate progress, the CFRC established four working groups: one on scenario analysis (detailed in

Section 4.A), one on risk assessment (detailed in Section 4.B), and two on data (detailed in Sections 5.A and

5.B). Figure 1 below provides an overview of the working groups.

Figure 1. Climate-related Financial Risk Committee (CFRC) Working Groups

Working Group Objective

Scenario Analysis Working

Group (SAWG)

Facilitate informaon sharing and capacity building for Council member agencies

to conduct scenario analysis.

Risk Assessment Working

Group (RAWG)

Develop a more robust framework around idenfying and assessing climate-

related nancial risks and vulnerabilies.

Data Infrastructure Working

Group (DIWG)

Work closely with the OFR to establish new infrastructure for agencies to nd,

obtain, share, and analyze data.

Data Requirements Working

Group (DRWG)

Idenfy Council member agencies’ data needs to assess and address climate-

related risks that are aligned with the agencies’ authories and mandates.

In addition to the sta-level CFRC, the Council formed an external advisory committee in October 2022—

the Climate-related Financial Risk Advisory Committee (CFRAC).

Consistent with Recommendation 1.2

of the Council’s Climate Report, the CFRAC helps the Council receive information and analysis on climate-

related nancial risks from a broad array of stakeholders. e duties of the CFRAC include:

• identifying information gaps and data inconsistencies, and recommending options for addressing

these issues, to support the Council’s collection of information pertaining to climate-related risks to

the nancial system;

• gathering and analyzing information on climate-related risks to the nancial system;

• providing advice and recommendations to the CFRC on identifying, assessing, and mitigating

climate-related risks to the nancial system; and

• performing other duties that the CFRC, the Council’s Deputies Committee, or the Council may assign.

e duties of the CFRAC are solely advisory and will extend only to the submission of advice and

nonbinding recommendations to the CFRC. e CFRAC’s initial slate of members includes stakeholders

from a wide range of backgrounds, including the nancial services industry, nongovernmental research

institutions, climate-related data and analytics providers, nonprot organizations, and academia. CFRAC

members’ climate data and analytical expertise support the Council’s eorts to understand the economic

and nancial impacts of climate-related risks.

All Council member agencies have been building capacity and/or focusing their eorts to address climate-

related nancial risk, consistent with their mandates. is activity includes assigning sta to work on the

topic and, for many, investing in stang and training, consistent with Recommendation 1.3 of the Climate

Report. Many members have developed internal working groups to support such eorts, and several public

documents show how the sta of Council member agencies are helping to advance collective understanding

of climate-related nancial risks, including in the form of external publications and conferences (see Box A).

Some Council member agencies are also engaging with their counterparts abroad through multilateral

international organizations on climate-related nancial risks. ese organizations include the Network of

Central Banks and Supervisors for Greening the Financial System (NGFS),

the Financial Stability Board

(FSB),

the Basel Committee on Banking Supervision (BCBS),

and the International Association of

Insurance Supervisors (IAIS).

Box A: Capacity-building Eorts

Recommendation 1.3 of the Climate Report suggests that Council members expand their respective capacities to

deﬁne, identify, measure, monitor, assess, and report on climate-related ﬁnancial risks and their eects on ﬁnancial

stability, including investments in data, analytic and modelling methodologies, and monitoring. Council member

agencies and their sta

have published research and external documents on a range of climate-related ﬁnancial

risk issues, some of which are highlighted as follows:

Banking: Research on U.S. banks’ exposures to climate transition risks,

whether banks are suciently capitalized

to absorb losses from climate transition risk,

how credit unions can increase preparedness for climate-related

risks,

and credit union exposure to physical risks.

Insurance:

A FIO report on insurance supervision and regulation of climate-related risks,

meeting materials of the

National Association of Insurance Commissioners (NAIC) Climate and Resiliency task force,

consumer views on

extreme weather and property insurance,

and analysis from the New York State Department of Financial Services

(NYDFS) of responses to the NAIC climate risk survey.

Financial Markets: Evidence that climate regulatory risks causally aect bond credit ratings and yield spreads,

and

the eects of climate-related risks as pertinent to the derivatives markets and underlying commodities markets.

Real Estate Markets: Research on the eects of quasi-mandatory ﬂood insurance on mortgage lending,

how

ﬂood maps may have inadvertently clustered those households ﬁnancially least able to bear the consequences of

a disaster into areas that may still pose a signiﬁcant ﬂood risk,

and how historical policies like redlining may have

put the assets of aected populations at a disproportionate climate risk,

a synopsis of information on the eects of

climate on the national housing ﬁnance system,

and a box topic on climate-related risks in mortgage securitization.

Microprudential and Macroprudential Policy: The design of stress tests to assess and manage the

macroprudential risks from climate change in the ﬁnancial sector.

In addition to research and publications from Council member agencies and their sta, some Council members have

hosted conferences to beneﬁt from external expertise, consistent with recommendation 4.1 of the Climate Report.

The OFR hosted the OFR Climate Implications for Financial Stability Conference on September 9, 2022, to present

research and hold panel discussions on topics including macroprudential issues, asset valuations, credit markets,

stress testing, and ﬁnancial system externalities.

OCC hosted a meeting on June 6-7, 2022, as a forum for presentations from academics and regulators on climate

change and the ﬁnancial system.

FHFA hosted an Economic Summit on climate risk on November 1, 2022, with sessions on climate stress testing and

academic research on impacts on vulnerable communities.

NAIC included a Natural Catastrophe Risk and Resiliency track at the 2020, 2021, and 2022 NAIC Insurance

Summits.

4. Assessing Climate-related Financial Risks

Authoritative assessment of climate-related nancial risks and their implications for nancial stability

requires new data and analytical tools, and continued progress in this area will require building on

emerging domestic and international work on this topic.

Analytical tools continue to be developed, and

future climate-related nancial risks may manifest in new ways because of the changing nature of the

climate, suggesting that assessments based on past experience are likely insucient. Advancing these

analytical tools and methods is a key focus area of the CFRC, including targeted working groups on scenario

analysis and risk assessment.

4.A. Scenario Analysis

e unprecedented nature of climate change means that anticipating its potential eects on the safety

and soundness of nancial institutions and on nancial stability requires forward-looking analyses. One

such approach is climate scenario analysis (CSA). A climate scenario posits a potential future path of

important climate-related factors, allowing analysts to explore the resulting eects on the economy and

nancial system. Dierent climate scenarios can embody dierent assumptions about how the future will

unfold, thus helping illustrate how dierent risks may evolve and allowing an exploration of their potential

implications.

Member agencies are in dierent stages of their engagement with CSA, as set out in more detail below.

Given the varying stages of progress, the main function of the Scenario Analysis Working Group (SAWG) is

to facilitate information sharing and capacity building for Council member agencies to conduct scenario

analysis, by providing a forum to exchange views and explore areas of shared interest—for example, through

presentations from external experts and relevant researchers from Council members. is function is

consistent with Recommendations 4.1 and 4.5 of the Climate Report. is section describes some of these

initial discussions and gives a sense of where the agencies currently are in their engagement with the topic.

a. Background on CSA

For the purposes of CSA in the context of nancial risk, analysts need to bridge a divide between

geophysical and socioeconomic models for future climate change paths and outcomes and convert them

into outcomes of nancial and economic interest. Analysts can take the outputs of climate models—for

example, future projected emissions and associated physical damages, or carbon pricing under transition

pathways consistent with specic temperature outcomes—and use them as inputs for economic and

nancial models, such as credit loss models, or undertake other statistical methods to explore implications

for individual banks, insurers, and other nancial institutions. Some scenario analyses explore longer-run

outcomes, such as how sea level rise might aect coastal property values over the life of a mortgage. Other

analyses focus on shorter-run outcomes, such as the immediate economic and nancial eects of a change

in climate policy.

CSA is distinct and separate from stress tests, which are generally designed to assess nancial institutions’

resilience to specic shocks in the short run and generally inform supervisory and regulatory assessments

for nancial institutions, including regulatory capital requirements for banks. Scenario analysis, in this

context, is typically more exploratory in nature and can help both rms and regulators understand the

resilience of the largest nancial institutions to a range of uncertain climate outcomes.

CSA has its limitations. e climate, economic, nancial, and technological systems represented in climate

scenario development and analysis are highly complex and can evolve rapidly. In addition, climate-related

nancial risks may dier from traditional nancial shocks, such as those associated with macroeconomic

and credit cycles, around which current credit loss models are calibrated. For example, climate shocks may

be more persistent than business cycle shocks, and they may ow through sectoral channels or regional

impacts rather than through macroeconomic variables. Accordingly, CSA is best considered as one useful

analytical tool to better understand the range of potential impacts.

Scenario analysis has been deployed usefully by regulators in other countries and within the private sector;

however, it will be important for Council members and the private sector to develop a range of tools as they

assess climate-related nancial risks and nancial stability.

b. Agency Eorts on Scenario Analysis

Council member agencies are in various stages of development of work with regard to advancing scenario

analysis, ranging from conducting foundational research to engaging or coordinating with their domestic

and international counterparts. Some examples are highlighted in this subsection.

In 2021 and 2022, OCC

, FDIC

, and the Federal Reserve

each issued for public feedback or comment

draft principles for climate-related nancial risk management for certain large nancial institutions

(or banks) (see Box C for more details). ese principles note how CSA oers a useful forward-looking

perspective and can help identify data and methodological limitations and uncertainty in climate-related

nancial risk management practices.

Federal Reserve: In January 2023, the Federal Reserve launched a pilot CSA exercise with six large

bank holding companies.

e Federal Reserve is conducting this exercise to learn about large banking

organizations’ climate risk-management practices and challenges and to enhance the ability of both

large banking organizations and supervisors to identify, measure, monitor, and manage climate-related

nancial risks (See Box B for additional details). is pilot CSA exercise will support the Federal Reserve’s

responsibility to ensure that supervised institutions are appropriately managing all material risks, including

nancial risks related to climate change.

OCC: OCC is conducting exploratory reviews of banks under OCC supervision with over $100 billion in

total consolidated assets. e objective of these reviews is to develop a baseline understanding of the banks’

management of climate-related nancial risks, including their current use of and future plans for scenario

analysis as a tool to identify and measure climate risk, model risk management, data capabilities and related

challenges in obtaining data, and data limitations.

FDIC: e FDIC has identied CSA as an emerging and important approach for identifying, measuring, and

managing climate-related nancial risk. As the FDIC expands its eorts to address climate-related nancial

risk, it will continue to engage with domestic and international counterparts, as well as other stakeholders,

to further understanding of how CSA can be used as part of an eective climate-related nancial risk

management framework.

CFTC: Risk surveillance sta within CFTC’s Division of Clearing and Risk (DCR) use a broad set of stress-

testing scenarios to ensure that registered entities are prepared to meet their nancial obligations during

periods of elevated market risk. DCR is exploring the inclusion of historical and hypothetical climate

events—such as hurricanes, extreme temperatures, and oods—that are relevant to derivatives markets and

could directly aect the supply of and demand for energy, agricultural, and environmental commodities.As

part of their work to broaden scenarios included in stress-testing analysis, DCR risk surveillance sta intend

to monitor the growth of derivatives markets that may be aected by physical or transition risk over time

and identify areas where additional or adjusted scenarios may be needed.

FHFA: FHFA is working with its regulated entities to ensure they are on a path to have the capacity to run

several climate-related scenarios. e objective of running these scenarios is to understand how they

may aect the safety and soundness and mission achievement of FHFA’s regulated entities. Owing to the

diculties and uncertainties involved in this work, FHFA expects this project to span several years. FHFA

also expects the types of scenarios and the interpretation of the results to evolve as FHFA and its regulated

entities gain additional knowledge of the data, assumptions, and methodologies needed to conduct the

analysis and evaluate the results of dierent scenarios.

NAIC: In 2022, the NAIC developed a revised climate risk disclosure survey aligned with the Financial

Stability Board’s Task Force on Climate-related Financial Disclosures. e new survey requires annual

reporting from at least 85% of the U.S. insurance market and includes questions regarding insurers’ use

of scenario analysis to assess and manage their underwriting and investment risk. Review of the public

disclosures provides insight into the processes insurers use to conduct scenario analysis, including the tools

insurers use the most. To support state insurance regulators’ eorts to understand more fully the processes

insurers employ to assess and manage their climate-related risks, the NAIC established a Catastrophe

Modeling Center of Excellence. Climate-conditioned models allow insurers to produce loss estimates

based on scenarios, aligned with various representative concentration pathways (RCPs). e NAIC collects

modeled loss detail within the Risk-based Capital framework, providing quantitative data on the physical

risk exposure of insurers under various natural-hazard event scenarios. In addition to the bottom-up

approach of collecting information from insurers, the NAIC’s Solvency Workstream of the Climate and

Resiliency Task Force is exploring methods of climate scenario analysis employed internationally and is

considering the need for a coordinated approach among state insurance regulators.

Council members will continue to exchange views and coordinate, as appropriate, as this work develops.

Box B: Federal Reserve Pilot CSA Exercise

As noted above, the Federal Reserve launched a pilot CSA exercise with six large bank holding companies in

January 2023.

The Federal Reserve designed the pilot CSA exercise to gather qualitative and quantitative information about the

climate risk-management practices of large banking organizations. Over the course of the exercise, the Federal

Reserve is engaging with participants to understand their approaches and challenges with respect to the ﬁnancial

risks of climate change. Information collected and discussed with participants will include detailed documentation

of governance and risk-management practices, measurement methodologies, data challenges and limitations,

estimates of the potential impact on speciﬁc portfolios, and lessons learned from this exercise.

The pilot CSA exercise comprises two separate and independent modules: a physical risk module and a transition

risk module. For both modules, the Federal Reserve described forward-looking scenarios to participating large

banking organizations, including core climate, economic, and ﬁnancial variables, where appropriate. In selecting

scenarios for this exercise, the Federal Reserve leveraged work by the Intergovernmental Panel on Climate Change

(IPCC) and the NGFS. The IPCC provides projections of how the climate and related hazards may change under

dierent trajectories of greenhouse gas concentrations. NGFS provides modeling projections of how economic and

ﬁnancial variables may evolve under dierent scenarios of climatic disruption and transition to a low-carbon future.

As previously noted, these climate scenarios are neither forecasts nor policy prescriptions, but they include a range

of plausible future outcomes that can help build understanding of how certain climate-related ﬁnancial risks could

manifest for large banking organizations and how these risks may dier from those of the past.

Participants will estimate the eects of these scenarios on a relevant subset of their loan portfolios over a future time

horizon. For each loan, participants will calculate and report to the Federal Reserve credit risk parameters, such as

probability of default (PD), internal risk rating grade (RRG), and loss given default (LGD), as appropriate. Participants

will respond to qualitative questions describing their governance, risk-management practices, measurement

methodologies, results for speciﬁc portfolios, and lessons learned. Focusing on changes to risk metrics like PD, RRG,

and LGD, rather than on estimates of losses, will provide information about how the relative riskiness of exposures

within participants’ credit portfolios may evolve over time in response to dierent climate scenarios. Loss estimates

would involve additional assumptions around the evolution of participants’ balance sheets and business models

and would be incomplete given the partial nature of the exercise, which focuses on speciﬁc regions and certain

portfolios for six participants.

The six U.S. bank holding companies (BHCs) that are participating in this pilot exercise are Bank of America

Corporation; Citigroup Inc.; Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; and Wells Fargo &

Company. These six banking organizations will submit completed data templates, supporting documentation, and

responses to qualitative questions to the Federal Reserve by July 31, 2023.

The Federal Reserve anticipates publishing the insights gained from this pilot exercise around the end of 2023.

The Federal Reserve expects to disclose aggregated information about how large banking organizations are

incorporating climate-related ﬁnancial risks into their existing risk-management frameworks. Consistent with the

objectives and design of the pilot exercise, the Federal Reserve does not plan to disclose quantitative estimates

of potential losses resulting from the scenarios included in the pilot exercise. No ﬁrm-speciﬁc information will be

released.

4.B. Risk Assessment

Consistent with Recommendations 2.5 and 4.1 of the Climate Report, the Risk Assessment Working Group

(RAWG) is developing a risk framework to identify and assess climate-related nancial risk and is using the

framework to iteratively identify a preliminary set of risk indicators. e proposed risk framework starts with

physical and transition risk drivers,

assesses how these risk drivers translate into economic impacts, and

identies the transmission channels from these economic impacts to the nancial system

(see Figure 2

for a visualization of the framework for physical risk and Figure 3 for a visualization of the framework for

transition risk).

is proposed framework builds on previous work on climate-related nancial risk, notably the framework

used in the Climate Report, the work of the NGFS,

and the framework previously proposed by the Bank

for International Settlements (BIS).

e proposed framework is also in line with more general nancial-

stability monitoring frameworks that look at underlying shocks to the system, identied nancial system

vulnerabilities, and propagation mechanisms.

Figure 2: Examples of Transmission of Physical Climate Risk Drivers to Financial Risks

Source: Council visualization, based on NGFS

Figure 3: Examples of Transmission of Transition Climate Risk Drivers to Financial Risks

Source: Council visualization, based on NGFS

Financial contagion feedback into

the economy (e.g., credit tightening)

Indirect transmission channels

(e.g., macro outlook) affect ﬁnancial system

Physical Risk Drivers

• increased severe

weather events

• rising sea levels

• chronic changes in

weather

Direct Transmission

Channels

Economic Impacts

• business disruption

• commodity price

volatility

• population

migration

• supply chain

shortages and

delays

• increased

corporate operating

expenses

• decreased

proﬁtability

• decreased

household wealth

• higher property

replacement

costs/lower

property values

Financial System

Impact

• increased credit

losses

• ﬁnancial market

disruptions and

losses

• increased

operational risks

• reinsurance

disruptions

• interactions and

spillovers within the

ﬁnancial system

Financial contagion feedback into

the economy (e.g., credit tightening)

Direct Transmission

Channels

Economic Impacts Financial System

Impact

Indirect transmission channels

(e.g., macro outlook) affect ﬁnancial system

Transition Risk Drivers

• changes in technology

that favor low-carbon

alternatives

• changes in consumer

sentiment

• changes in policies to

encourage transition to

low-carbon economy

• stranded assets

• shift in availability

of investment funds

• change in energy

sources and prices

• devaluation of

corporate assets

• increased

corporate leverage

to facilitate

business

transformation

• decreased

household wealth

• increased credit

losses

• ﬁnancial market

disruptions and

losses

• interactions and

spillovers within the

ﬁnancial system

e ultimate aim of this proposed framework is to provide a tool for identifying vulnerabilities in the

nancial system through assessment of the nancial system impact of these physical and transition risk

drivers. ere are various approaches to sizing the potential impacts, including the development of risk

indicators, which are frequently used in systemic risk assessment.

e RAWG’s development of risk

indicators is an iterative process that will continue to evolve as the available research and data mature and

deepen the sta’s understanding of climate-related nancial risks. e RAWG and the SAWG have areas of

shared interest in quantifying forward-looking climate impacts (for example, the use of scenario analysis to

quantify potential future losses), and as such, the work of the two groups is complementary.

a. Risk Indicators

To advance its goal of developing risk indicators as part of an overall risk assessment framework, the RAWG

formed three workstreams: banking, insurance, and nancial markets. Each of these workstreams focuses

on a specic sector of the nancial system, but all three work closely together because the interplay among

banking, insurance, and nancial markets may amplify climate-related risks.

i. Banking

e RAWG banking workstream was formed to identify potential risk indicators for regulated banking

institutions, including banks, bank holding companies, thrifts, and credit unions. Climate-related risk

drivers—including physical and transition risks—can manifest as and amplify traditional risks, including

credit, liquidity, market, strategic, reputation, legal, compliance, operational, and other risks. For example,

physical risks may be correlated across assets on a banking institution’s balance sheet, which can result

in unidentied concentrations of risks in loans or deposits. Transition risk may result in increased credit

or market risk if new technologies or policies designed to promote a transition to a low-carbon economy

reduce a banking institution’s ability to rely on existing models to predict loan losses or the timing of

repricing events.

Figure 4 provides examples of climate risk drivers that may manifest as or amplify traditional risks. e

examples in Figure 4 are not exhaustive. ey represent a few of the traditional risk types as well as some

possible risk drivers, transmission channels, potential eects on the nancial system, and indicators that

could be used for monitoring.

Figure 4: Examples of Possible Banking Climate Risk Indicators

Category of

Risk

Risk Driver  Transmission Channel  Impacts on

Banks

Example of Possible Banking Indicators

Credit

Physical: Increased acute severe weather events 

Damages to real estate  Increasing loan defaults

Total loan balances of mortgages held by

banks that are exposed to acute physical

risk

Transition: Policies requiring energy eciency retroﬁts

to existing buildings  Decline in real estate values for

less energy-ecient properties  Higher default rates

Total loan balances of mortgages held by

a bank with low energy eciency ratings,

in jurisdictions with mandated energy

eciency policies

Market

Physical: Increased incidence of severe weather 

Repricing of assets highly exposed to severe weather

 Balance sheet losses

Estimated value-at-risk of trading book

assets exposed to physical risk

Transition: Sudden shift in market expectations around

future of technology, policy, or consumer preferences

 Repricing of assets dependent on carbon-intensive

energy production or other emissions-intensive

technologies

Estimated value-at-risk of assets on

trading book exposed to transition risk

Operational

Physical: Increased frequency and severity of severe

weather  Disruptions of data centers  Increased

costs for ﬁnancial ﬁrms with locations exposed to

physical risk

Exposure (%) of ﬁnancial ﬁrms’ physical

locations in areas of high physical risk

Transition: Introduction of regulatory regimes with

diering transition requirements  Increasing

complexity of locating operations and serving

customers across multiple jurisdictions  Higher

operating costs

Number of diering legal jurisdictions a

ﬁnancial ﬁrm is operating in

Given the RAWG’s objectives, the workstream has not limited potential climate-related nancial risk

indicators to those that can be measured with currently available data but continues to contemplate future

iterations contingent on closing data gaps, conducting complex modeling, or other changes in available

information.

As recommended in the Climate Report, the banking workstream is also considering how climate-related

nancial risk aects low- and moderate-income consumers and other underserved communities.

e

banking workstream has incorporated these elements into its risk assessment process and continues to

consider metrics that may measure disparate impacts on these communities.

e banking workstream also recognized signicant challenges in measuring and monitoring potential

risks. Assessing climate-related nancial risk requires forward-looking perspectives that incorporate

how rms and households are responding to climate change. At present, there are material data and

measurement limitations; these include reliance on multiple data sources that require signicant analysis

to ensure accurate comparisons, incomplete data related to the transmission of climate-related nancial

risk, and data gaps related to geographical and industry exposures in current nancial reporting. A holistic

view of banking institutions also includes their relationships with nonbank nancial institutions (NBFIs),

including nonbank lenders and nancial intermediaries. Given data gaps related to NBFI relationships,

analysis may understate climate-related risk to the overall nancial system. e banking workstream also

noted challenges in measuring sectoral exposure to transition risk and regions that are most vulnerable to

physical risk.

ii. Insurance

e RAWG insurance workstream was formed to develop risk indicators for the insurance sector. e

insurance sector, including reinsurance,

is unique in that it both faces climate-related nancial risk

itself and plays a critical role as a manager of climate-related nancial risk for other nancial institutions,

companies, and consumers, including encouraging adaptation measures in response to physical risks.

Given their role in mitigating climate-related risks for other actors, insurers and reinsurers are closely

interconnected with other nancial institutions, including banking institutions, mortgage lenders, and other

capital market participants such as asset managers and alternative investment vehicles.

e workstream leveraged a dashboard used by the NAIC in its Macroprudential Risk Assessment system

as it developed its initial views on risk indicators. Figure 5 summarizes some of the initial thinking on these

indicators, following a roughly similar framework to that of the banking workstream by laying out how risk

drivers can result in impacts on the insurance sector. ese risk drivers are broadly organized around the

categories of physical risk, transition risk, and impacts on insurance coverage.

e examples below are

not exhaustive and represent some possible risk drivers, transmission channels, potential eects on the

insurance sector, and indicators that could be used for monitoring.

Figure 5: Examples of Possible Insurance Climate Risk Indicators

Category of

Risk

Example Risk Driver  Transmission Channels 

Financial System Impact

Example of Possible Climate Risk

Indicators

Physical

Increased acute severe weather events  Damages

to insured assets  Insurance company losses 

Insolvencies

Insured losses; number of insurer

insolvencies over time (caused by

natural catastrophes)

Transition

A shift in market expectations around future of technology,

policy, or consumer preferences  Repricing of assets

dependent on carbon-intensive energy production or other

emissions-intensive technologies  Losses on asset side

of insurers’ balance sheets

Estimated value-at-risk of assets

exposed to transition risk

Coverage

Increased frequency and severity of severe weather 

Higher insurance premiums  Availability, adequacy of

insurance coverage and increased costs for households

and businesses

Nonrenewals (ratio of nonrenewals

to policies in force) by insurers and/

or policyholders

Potential indicators related to physical risk include natural catastrophe frequency and severity, insurer

insolvencies, and modeled loss data based on widely used industry catastrophe models. Much of the

discussion of transition risk analysis so far has focused on risk that insurers may be exposed to through their

investment portfolios and potential metrics for measuring this exposure.

In addition to developing potential risk indicators for the insurance sector, the insurance working group is

also looking at the work of FIO, the NAIC, and state insurance regulators to identify and analyze trends in

coverage and availability of insurance based on recent, high-level, publicly available information, such as

MCAS-market conduct annual statement-ratio of non-renewed to policies in force and information from

industry consultants like Swiss Re that contain information on rate increases, economic and insured losses,

and other measures, since this can aect households, businesses, and by extension the broader nancial

system.

In addition to the eorts by the insurance workstream, FIO, the NAIC, and state insurance regulators

are considering or engaged in other initiatives to more eectively measure and assess climate-related

impacts on the insurance industry. ese initiatives include a proposed data collection by FIO,

the NAIC’s

Catastrophe Modelling Center of Excellence,

and the NAIC’s Climate Risk Disclosure Survey (which is

required by 15 states and the District of Columbia).

iii. Financial Markets

e nancial markets group was formed to identify climate-related nancial risk indicators that aect the

nancial system outside of the entities encompassed by the banking and insurance workstreams. is

system includes a wide range of NBFIs, including asset owners (such as mutual funds) and nancial service

providers (such as broker-dealers). Given the potential breadth, the nancial markets workstream rst had

to dene the scope of its work, and it decided to focus on stratifying risk according to individual asset classes

(such as equities, xed income, and derivatives) and services (such as payments providers and prime

brokers).

e nancial markets workstream has preliminarily identied potential risk indicators, even if they cannot

currently be measured due to data, methodology, or other limitations, though this work is still in early

stages due to the scope of nancial entities and instruments covered. e workstream is currently focused

on identifying potential risk metrics that can be used across multiple products and services and that can be

calculated with currently available data and methodologies.

b. Next Steps for the Development of Risk Indicators

Despite progress, challenges remain, and risk indicators are in early development. Monitoring the

potential eects that climate-related nancial risk drivers may have on the nancial system requires a

broad understanding of the transmission channels and risk ampliers. As agencies seek to build this

understanding and incorporate climate-related nancial risks into a risk-monitoring framework, they

face challenges related to data gaps and fragmentation, inconsistencies in measurement techniques and

assumptions, and a paucity of academic research exploring the nancial stability implications of climate-

related nancial risks.

Given these challenges, identifying and monitoring climate-related nancial risk indicators will likely be an

iterative process that will develop over time with ongoing dialogue between Council member agencies and

with external stakeholders.

4.C. Agency Eorts on Assessing and Mitigating Climate-related

Financial Risk

In addition to participating in the work underway via CFRC working groups, individual agencies are taking

action to assess and mitigate climate-related risks, as appropriate within their respective mandates.

For example, as summarized in Box C, OCC, FDIC, and the Federal Reserve have each issued draft

principles for the management of climate-related nancial risk by large nancial institutions. State

regulators are also taking action. For example, NYDFS has issued guidance to insurance companies and

banks outlining its expectations related to addressing the nancial risks from climate change.

Box C: Principles for Climate-related Financial Risk Management for Large

Financial Institutions

In 2021 and 2022, OCC

, FDIC

, and the Federal Reserve

each requested feedback or public comment on draft

principles for climate-related ﬁnancial risk management for certain large ﬁnancial institutions (or banks), with an eye

to providing a high-level framework for the safe and sound management of exposures to climate-related ﬁnancial

risks. These principles would address key aspects of how applicable ﬁnancial institutions with consolidated assets

greater than $100 billion should evaluate and manage climate-related ﬁnancial risks.

The principles would cover six areas: (1) governance; (2) policies, procedures, and limits; (3) strategic planning; (4) risk

management; (5) data, risk measurement, and reporting; and (6) scenario analysis. The draft principles also describe

how climate-related ﬁnancial risks can be addressed in speciﬁc prudential risk areas including credit, liquidity, other

ﬁnancial risks, operational, legal and compliance, and other nonﬁnancial risks.

The draft principles from OCC, FDIC, and the Federal Reserve are substantially similar, and the agencies have

indicated their intention to work together to promote consistency in the supervision of large banks through ﬁnal

interagency guidance after carefully reviewing comments received.

5. Climate-related Data and Methodological Gaps

Measurement of climate-related nancial risks requires additional data and methodologies that may be

new to nancial institutions, investors, market participants, and regulators. In addition, there are gaps

in available data, or data may not be in a readily usable format.

Consequently, Council members have

identied work on data and methodologies as a priority, and the CFRC has formed two working groups to

support this priority: the Data Infrastructure Working Group and the Data Requirements Working Group,

consistent with Recommendations 2.1 to 2.5 of the Climate Report.

5.A. Building the Infrastructure for Data Sharing

e Data Infrastructure Working Group (DIWG) has been facilitating the sharing of climate-related data

among Council members and coordinating with the OFR on the Joint Analysis Data Environment (JADE).

JADE is a collaborative environment developed by the OFR and designed for use by all Council member

agencies (see Box D below). Once fully operational, JADE will support comprehensive nancial-stability

research by providing a platform to access and analyze a broad spectrum of data. Climate-related nancial

risk is the rst use case the Council has identied for JADE. e OFR has onboarded climate data sets

prioritized by the CFRC and Council member agencies, and it continues to add climate, nancial, and

demographic data to JADE based on their research plans.

Box D: Climate Data and Analytics Hub and Joint Analysis Data

Environment (JADE)

In July 2022, the OFR announced the launch of its Climate Data and Analytics Hub (Hub), a new pilot platform to

help certain ﬁnancial regulators assess risks to ﬁnancial stability stemming from climate change. This environment

was designed to test the OFR’s ability to improve regulators’ access to climate and ﬁnancial data, high-performance

computing tools, and analytical and visualization software.

Access to the phase one pilot was limited to the Federal Reserve and FRBNY. The Climate Data and Analytics Hub

allowed pilot participants to integrate data from across the federal government—including wildﬁre, crop condition,

ﬂood, precipitation, and other climate-related data—for a more precise view of the relationship between climate

change factors. The Hub was also equipped with statistical and visualization applications to allow deeper insight into

climate-related ﬁnancial risks and vulnerabilities.

Given the success of the pilot, the OFR announced in April 2023 that it is moving forward with the development

of an expanded and enhanced version of the platform, which was named the Joint Analysis Data Environment, or

JADE. Once fully operational, JADE will support comprehensive ﬁnancial-stability research by providing a platform to

access and analyze a broad spectrum of ﬁnancial and other relevant data.

Currently, JADE includes the following publicly available data:

• National Flood Insurance Program Policies and Claims (FEMA, Public Version)

• Individual Assistance Data (FEMA)

• National Flood Hazard Layer (FEMA)

• Hazard Mitigation (FEMA)

• Disaster Declaration Summaries (FEMA)

• Climate Prediction Center (NOAA)

• Toxics Release Inventory Program (EPA)

• U.S. Drought Monitor (University of Nebraska-Lincoln)

• Wildﬁre Risk (USDA)

• Crop Conditions (USDA)

• Modern-Era Retrospective Analysis for Research and Applications, Version 2 (NASA)

• National Risk Index (FEMA)

• Home Mortgage Disclosure Act (CFPB, Public Version)

• Census Boundary Data – TIGER/Line Geodatabases (Census)

The OFR anticipates that the initial version of JADE will be released during the second half of 2023 and made

available to users from at least four agencies by the end of the calendar year. The OFR plans to gradually expand

JADE’s features, give access to other Council regulators, and include additional data.

To assist the OFR in developing the Hub and JADE, the DIWG worked with input from all member agencies

to create an inventory of data infrastructure needs, including assessing agency requirements for computing

tools, analytical software, visualization software, collaboration tools, and mapping tools. e DIWG also

provided input to the OFR on other relevant topics, including metadata management, storage, access,

security considerations, degree of resolution, and user congurations. ese eorts have facilitated a

collaborative plan and roadmap for the OFR’s development of JADE.

5.B. Identifying Shared Data Needs

To complement the work of the DIWG, the Data Requirements Working Group (DRWG) focused on

identifying shared data needs, gaps, and limitations among Council members. To do so, the DRWG created

an inventory of datasets that have been collected or identied as relevant for assessing climate-related

nancial risks. DRWG then conducted a gap analysis of these datasets and prioritized them by their

criticality to assessing climate-related nancial risks. is gap analysis and prioritization work informed

the OFR’s acquisition process for public, nonpublic, and commercial data to be loaded onto JADE. While

the entirety of currently loaded datasets is public, these exercises have informed the nonpublic and

commercial datasets that the CFRC and its partners have sought to acquire. ere is also a series of

nonpublic and commercial holdings in the process of being onboarded. Current datasets residing on JADE

are listed in Box D.

In many cases, however, data acquisition is impeded by limited data quality or availability. In some

cases, data identied by member agencies as key for future analysis of nancial stability do not exist at a

suciently granular level, or there may be limitations in the quality of currently available data. For example,

data relating to asset-level insurance coverage for ood and other hazards were highlighted by several

agencies as being critical for assessing the aggregate exposure of nancial institutions to physical impacts

of climate change, but there are gaps in data for insurance coverage at the level of individual assets. Where

desired data are not available, have not yet been collected, or have not been consistently aggregated, new or

enhanced data collections may improve the ecacy of future climate-related nancial risk analyses.

Additionally, in order to conduct analysis, member agencies would require access to both climate

and nonclimate data, since the climate-related datasets often need to be combined with nancial,

socioeconomic, insurance, or regulatory data for monitoring and supervisory purposes. To the extent that

the necessary climate-related data already exist (and eorts are underway to improve data availability—see,

for example, Box E), integrating them with nancial data is relatively novel and a lengthy process.

Box E: Enhancing Public Climate-related Disclosures

High-quality climate-related disclosures that oer meaningful information about climate-related ﬁnancial risks foster

increased transparency into those risks. When disclosures are made publicly available, they enable investors

and market participants to better assess the climate-related ﬁnancial risks of companies and investments. These

disclosures can also facilitate market eciency by allowing climate-related risks to be better priced into ﬁnancial

markets.

In March 2022, the Securities and Exchange Commission (SEC) proposed rule changes that would require

registrants to include certain climate-related disclosures in their registration statements and periodic reports,

including information about climate-related risks and their actual or likely material impacts on their business, results

of operations, or ﬁnancial condition; the registrant’s governance of such risks; certain climate-related ﬁnancial

statement metrics; the registrant’s greenhouse gas emissions; and climate-related targets, goals, and transition

plans.

Following the publication of the rule for public consultation, the SEC has been reviewing the comments

received and working to ﬁnalize the rule.

The NAIC aligned its Climate Risk Disclosure Survey with FSB’s Task Force on Climate-related Financial Disclosures

(TCFD) last year.

In 2022, over 1,500 insurers submitted either a completed Survey or a TCFD report. The reports

are publicly available. The NAIC’s Center for Insurance Policy and Research has partnered with the Society of

Actuaries to review insurers’ methods of assessing, monitoring, and managing their climate-related risks and

exposure to associated macroeconomic trends.

6. Next Steps: Continuing to Enhance Coordination and Build

Capacity on Climate-related Financial Risks

e Council and its member agencies continue to view climate-related nancial risks as a key priority and

will advance the recommendations from the Climate Report. As an interagency body, the Council plays

an important role in assessing nancial stability risks that ow across the nancial system. In addition

to supporting the continued use of the CFRC for interagency engagement and coordination, sta from

member agencies have particularly highlighted cross-cutting issues as priority areas—including continuing

coordination on data and the development of key risk indicators for risk assessment. In addition, the

intersection of physical risk, real estate, banking, insurance, and household nances is emerging as a shared

area of interest and potential future work. As laid out in more detail in the Council’s 2022 Annual Report,

climate-related events like wildres and ooding may result in damage that can reduce the value of real

estate, aecting, for example, insurance protability via higher-than-expected underwriting losses,

well as the cost and availability of insurance coverage for households and businesses,

with potential to

spill over to other parts of the nancial system and real economy. Given the critical role of real estate in the

economy and the nancial system, and how it aects the remits of multiple Council member agencies, the

intersection of physical risk, real estate, and insurance is emerging as a particular priority for future analysis

for the CFRC.

Endnotes

1 FSOC. Report on Climate-Related Financial Risk. (October 21, 2021). https://home.treasury.gov/system/ﬁles/261/FSOC-Climate-

Report.pdf.

2 As used in this progress report, the terms Council members and members mean either the individual voting and nonvoting

members of the Council or the agencies and organizations that these individuals represent, as applicable.

3 FSOC. Fact Sheet on FSOC Progress in Addressing Climate-Related Financial Risk. (July 28, 2022). https://home.treasury.gov/

system/ﬁles/261/FSOC_20220728_Factsheet_Climate-Related_Financial_Risk.pdf.

4 OFR. “OFR Advances Data-and-Analytics Platform Following Successful Pilot.” (April 6, 2023). https://www.ﬁnancialresearch.

gov/press-releases/2023/04/06/ofr-advances-data-and-analytics-platform-following-successful-pilot/.

5 FIO. “Treasury’s Federal Insurance Oce Takes Important Step to Assess Climate-related Financial Risk – Seeks Comment on

Proposed Data Call.” (October 18, 2022). https://home.treasury.gov/news/press-releases/jy1030.

6 OCC. Principles for Climate-Related Financial Risk Management for Large Banks. (December 16, 2021). https://www.occ.gov/

news-issuances/bulletins/2021/bulletin-2021-62a.pdf.

7 FDIC. “Request for Comment on Statement of Principles for Climate-Related Financial Risk Management for Large Financial

Institutions.” (March 30, 2022). https://www.fdic.gov/news/ﬁnancial-institution-letters/2022/ﬁl22013.html.

8 Federal Reserve. Principles for Climate-Related Financial Risk Management for Large Financial Institutions. (December 2,

2022). https://www.federalreserve.gov/newsevents/pressreleases/ﬁles/other20221202b1.pdf.

9 FIO. “Treasury’s Federal Insurance Oce Releases Report Assessing Climate-Related Risk, Gaps in Insurance Supervision.”

(July 28, 2023). https://home.treasury.gov/news/press-releases/jy1579.

10 Federal Reserve. “Pilot Climate Scenario Analysis (CSA) Exercise: Participant Instructions.” (January 2023). https://www.federal-

reserve.gov/publications/climate-scenario-analysis-exercise-instructions.htm.

11 FSOC. FSOC 2022 Annual Report. (Dec 21, 2022): pp. 75-77. https://home.treasury.gov/system/ﬁles/261/FSOC2022AnnualRe-

port.pdf.

12 Last year, the property and casualty insurance market in the United States experienced a net underwriting loss of $27 billion,

the largest since 2011, due in part to the increasing incidence of extreme weather, among other factors, including inﬂation. See

Insurance Journal. “Near $27B Underwriting Loss in 2022 Largest for U.S. P/C Insurers Since 2011.” (March 30, 2023). https://www.

insurancejournal.com/news/national/2023/03/30/714476.htm.

13 See, e.g., Kamin, Debra. “Home Insurance Premiums Rise as Americans Flock to Weather-Worn States.” (May 5, 2023). New

York Times. https://www.nytimes.com/2023/05/05/realestate/home-insurance-climate-change.html; Eaglesham, Jean. “Home Insur-

ers Including AIG Curb New Policies in Risky Areas Nationally.” (June 8, 2023). Wall Street Journal. https://www.wsj.com/articles/

home-insurers-curb-new-policies-in-risky-areas-nationally-c93abac0?mod=markets_featst_pos1; Asher-Schapiro, Avi. “CORRECT-

ED-FEATURE-Home insurance coverage falters as California wildﬁres worsen.” (May 17, 2023). Reuters. https://www.reuters.com/

article/climate-change-insurance-california/corrected-feature-home-insurance-coverage-falters-as-california-wildﬁres-worsen-

idUSL8N36V0A4.

14 FSOC. Financial Stability Oversight Council Identiﬁes Climate Change as an Emerging and Increasing Threat to Financial Sta-

bility. (October 21, 2021). https://home.treasury.gov/news/press-releases/jy0426.

15 For the full list of recommendations, see FSOC. Report on Climate-Related Financial Risk. (October 21, 2021): pp. 5-9. https://

home.treasury.gov/system/ﬁles/261/FSOC-Climate-Report.pdf.

16 FSOC. “Financial Stability Oversight Council Establishes New Climate-related Financial Risk Advisory Committee.” (October 3,

2022). https://home.treasury.gov/news/press-releases/jy0987.

17 For more information on the NGFS, see NGFS. “Network for Greening the Financial System.” https://www.ngfs.net/en.

18 For more information on the FSB, see FSB. “Financial Stability Board.” https://www.fsb.org/.

19 For more information on the BCBS, see BSCBS. “The Basel Committee – overview.” https://www.bis.org/bcbs/.

20 For more information on the IAIS, see IAIS. “International Association of Insurance Supervisors.” https://www.iaisweb.org/

activities-topics/climate-risk/.

21 Note that research and publications by sta do not represent ocial positions of their respective agencies.

22 FRBNY. U.S. Banks’ Exposures to Climate Transition Risks. (April, 2023). https://www.newyorkfed.org/medialibrary/media/re-

search/sta_reports/sr1058.pdf?sc_lang=en.

23 FRBNY. “CRISK: Measuring the Climate Risk Exposure of the Financial System.” (April 20, 2023). https://libertystreeteconomics.

newyorkfed.org/2023/04/crisk-measuring-the-climate-risk-exposure-of-the-ﬁnancial-system/.

24 NCUA. “Webinar on Climate-Related Preparedness.” (September 15, 2022). https://ncua.gov/news/events/2022/register-now-

webinar-climate-related-preparedness.

NCUA. “NCUA Research Examines Credit Union Exposure to Climate-Related Physical Risks.” (April 19, 2023). https://ncua.

gov/newsroom/press-release/2023/ncua-research-examines-credit-union-exposure-climate-related-physical-risks#:~:text=The%20

NCUA%27s%20research%20showed%3A,at%20the%20end%20of%202021.

FIO. “Treasury’s Federal Insurance Oce Releases Report Assessing Climate-Related Risk, Gaps in Insurance Supervision.”

(June 27, 2023). https://home.treasury.gov/news/press-releases/jy1579.

27 NAIC Climate and Resiliency Taskforce. “Climate and Resiliency (EX) Task Force.” https://content.naic.org/cmte_ex_climate_re-

siliency_tf.htm.

NAIC and CIPR. Extreme Weather and Property Insurance: Consumer Views. (July, 2021). https://content.naic.org/sites/default/

ﬁles/CIPR%20Consumer%20property%20ins%20report%208-21_0.pdf.

NYSDFS. New York Domestic Insurers’ Management of the Financial Risks from Climate Change. (July, 2021). https://www.dfs.

ny.gov/system/ﬁles/documents/2021/09/naic-survey-analysis-report-2021_ﬁnal_0.pdf.

30 FRBNY. Climate Regulatory Risks and Corporate Bonds. (April 2022). https://www.newyorkfed.org/research/sta_reports/

sr1014.html.

31 CFTC. Request for Information on Climate-Related Financial Risk. (June 8, 2022). https://www.cftc.gov/sites/default/

ﬁles/2022/06/2022-12302a.pdf.

32 FRBNY. Unintended Consequences of “Mandatory” Flood Insurance. (April 2022). https://www.newyorkfed.org/research/

sta_reports/sr1012.html.

33 FRBNY. “Moving Out of a Flood Zone? That May Be Risky!” (April 2022). https://libertystreeteconomics.newyorkfed.

org/2023/04/moving-out-of-a-ﬂood-zone-that-may-be-risky/.

34 See CFPB. “Climate risk should be considered in housing decisions.” (April 8, 2022). https://www.consumerﬁnance.gov/about-

us/blog/homebuyers-homeowners-renters-should-consider-climate-risks-in-decisions-about-future/.

35 See FHFA. Synopsis of Climate and Natural Disaster Risk Management RFI Responses. (2022) https://www.fa.gov/Media/

PublicAairs/Documents/2022_RFI-Summary.pdf.

36 See OFR. Annual Report 2022. (January 12, 2023): pp. 99-102. https://www.ﬁnancialresearch.gov/annual-reports/ﬁles/OFR-

Annual-Report-2022.pdf.

37 FRBNY. Climate Stress Testing. (April 2023). https://www.newyorkfed.org/research/sta_reports/sr1059.

38 OFR. “Climate Implications for Financial Stability Conference.” (September 9, 2022). https://www.ﬁnancialresearch.gov/confer-

ences/2022/09/09/climate-implications-for-ﬁnancial-stability-conference/.

39 See OCC. “OCC Solicits Academic Papers, Research on Climate Risk in Banking and Finance.” (December 3, 2021). https://

www.occ.treas.gov/news-issuances/news-releases/2021/nr-occ-2021-126.html.

40 See FHFA. FHFA Econ Summit Agenda. (November 1, 2022). https://www.fa.gov/Media/Documents/FHFA-Econ-Summit-

Agenda-Fall-2022.pdf.

See section 3 above for additional information on FSOC member agencies’ capacity-building eorts and international en-

gagement on climate-related ﬁnancial risk.

See OCC. OCC Principles for Climate-Related Financial Risk Management. (December 16, 2021). https://www.occ.gov/news-

issuances/bulletins/2021/bulletin-2021-62.html.

43 See FDIC. Request for Comment on Statement of Principles for Climate-Related Financial Risk Management. (March 30,

2022). https://www.fdic.gov/news/ﬁnancial-institution-letters/2022/ﬁl22013.html.

44 See Federal Reserve. Principles for Climate-Related Financial Risk Management for Large Financial Institutions. (December 8,

2022). https://www.federalregister.gov/documents/2022/12/08/2022-26648/principles-for-climate-related-ﬁnancial-risk-manage-

ment-for-large-ﬁnancial-institutions.

45 Federal Reserve. “Pilot Climate Scenario Analysis (CSA) Exercise: Participant Instructions.” (January 2023). https://www.federal-

reserve.gov/publications/climate-scenario-analysis-exercise-instructions.htm.

46 As deﬁned by BIS, risk drivers are climate-related changes that could lead to ﬁnancial risks. BIS. Climate-related risk drivers

and their transmission channels. (April 2021). https://www.bis.org/bcbs/publ/d517.pdf.

As deﬁned by BIS, transmission channels are “causal chains that explain how climate risk drivers impact banks directly and

indirectly through their counterparties, assets, and the economy in which they operate.” See endnote 46.

48 NGFS. First comprehensive report: A call for action Climate change as a source of ﬁnancial risk. (April 17, 2019). https://www.

ngfs.net/sites/default/ﬁles/medias/documents/ngfs_ﬁrst_comprehensive_report_-_17042019_0.pdf.

BIS. “Climate-related risk drivers and their transmission channels.” (April 2021). https://www.bis.org/bcbs/publ/d517.pdf.

50 See, e.g., Financial Stability Board. FSB Financial Stability Surveillance Framework. (April 2021). https://www.fsb.org/wp-con-

tent/uploads/P300921.pdf.

51 See NGFS. First comprehensive report: A call for action Climate change as a source of ﬁnancial risk. (April 17, 2019): p. 14.

https://www.ngfs.net/sites/default/ﬁles/medias/documents/ngfs_ﬁrst_comprehensive_report_-_17042019_0.pdf.

See NGFS. First comprehensive report: A call for action Climate change as a source of ﬁnancial risk. (April 17, 2019). https://

www.ngfs.net/sites/default/ﬁles/medias/documents/ngfs_ﬁrst_comprehensive_report_-_17042019_0.pdf.

See, e.g., OFR. “Financial System Vulnerabilities Monitor.” https://www.ﬁnancialresearch.gov/ﬁnancial-vulnerabilities/#/. An-

other commonly used approach is scenario analysis, as discussed in Section 4.A.

As noted below, there is a general challenge in deﬁning exposure to physical and transition risks, which requires forward-

looking assumptions about future policy pathways, expected climate impacts under dierent emissions scenarios, and mitigating

measures taken by households.

55 The Financial Literacy and Education Commission is also assessing the impact of climate change on households and commu-

nities: Financial Literacy and Education Commission. “Treasury Launches Eort to Study Impact of Climate Change on Households

and Communities.” (October 13, 2021). https://home.treasury.gov/news/press-releases/jy0404.

56 When aninsurer arranges totransfer all or part of a risk to another insurer to provide protection against the risk of the ﬁrst

insurance.

57 For more on this NAIC system, see NAIC. NAIC Macroprudential Risk Assessment. https://content.naic.org/sites/default/ﬁles/

inline-ﬁles/Macroprudential%20Risk%20Assessment_0.pdf.

58 This is in line, for example, with the IAIS approach, which looks at physical and transition risks as broad categories that aect

market and underwriting risk. See IAIS and SIF. Issues Paper on Climate Change Risks to the Insurance Sector. (July, 2018). https://

www.insurancejournal.com/research/app/uploads/2018/08/IAIS_and_SIF_Issues_Paper_on_Climate_Change_Risks_to_the_In-

surance_Sector_-1.pdf.

59 FIO. “Agency Information Collection Activities; Proposed Collection; Comment Request; Federal Insurance Oce Climate-

Related Financial Risk Data Collection.” (October 21, 2022). https://www.federalregister.gov/documents/2022/10/21/2022-22880/

agency-information-collection-activities-proposed-collection-comment-request-federal-insurance. In October 2022, FIO published

a Federal Register Notice (FRN) with a request for comments on a proposed nationwide data collection from certain property &

casualty (P&C) insurers regarding their current and historical underwriting data on homeowners’ insurance that will assist FIO’s

assessment of climate-related exposures and their eects on insurance availability for policyholders. See also endnote 5. The

comment period closed in December 2022.

See NAIC. Catastrophe Modeling Center of Excellence. https://content.naic.org/research/catastrophe-modeling-center-of-ex-

cellence. The Catastrophe Modeling Center of Excellence provides state insurance regulators with technical training and expertise

regarding catastrophe models and information regarding their use within the insurance industry; it also conducts research utilizing

outputs from catastrophe models to assess the risk of loss from natural hazards.

Illinois Department of Insurance (IDOI). “IDOI Calls on Insurers to Disclose Climate-Related Risks.” (October 13, 2022). https://

idoi.illinois.gov/news/press-release.25558.html. The jurisdictions requiring the survey in 2023 for the 2022 reporting year are

California, Connecticut, Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New

York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington. Insurers doing business in those jurisdictions and that annu-

ally write $100 million or more in direct premiums nationwide must complete the survey by August 30, 2023.

The information is available on the agency’s website: NYSDFS. Climate Change. https://www.dfs.ny.gov/industry_guidance/

climate_change.

See OCC. OCC Principles for Climate-Related Financial Risk Management. (December 16, 2021). https://www.occ.gov/news-

issuances/bulletins/2021/bulletin-2021-62.html.

64 See FDIC. Request for Comment on Statement of Principles for Climate-Related Financial Risk Management. (March 30,

2022). https://www.fdic.gov/news/ﬁnancial-institution-letters/2022/ﬁl22013.html.

See Federal Reserve. Principles for Climate-Related Financial Risk Management for Large Financial Institutions. (December 8,

2022). https://www.federalregister.gov/documents/2022/12/08/2022-26648/principles-for-climate-related-ﬁnancial-risk-manage-

ment-for-large-ﬁnancial-institutions.

See FSOC. Financial Stability Oversight Council Identiﬁes Climate Change as an Emerging and Increasing Threat to Financial

Stability. (October 21, 2021): Ch. 3. https://home.treasury.gov/system/ﬁles/261/FSOC-Climate-Report.pdf.

67 See OFR. “OFR Advances Data-and-Analytics Platform Following Successful Pilot.” (2023). https://www.ﬁnancialresearch.gov/

press-releases/2023/04/06/ofr-advances-data-and-analytics-platform-following-successful-pilot/.

68 For additional detail, see SEC. Fact Sheet: Enhancement and Standardization of Climate-Related Disclosure. (March 21, 2022).

https://www.sec.gov/ﬁles/33-11042-fact-sheet.pdf.

69 See NAIC. “NAIC Climate Risk Disclosure Survey.” (2023). https://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-

applications/ClimateSurvey/.

See FSOC. FSOC 2022 Annual Report. (2022): pp. 75-77.

71 Insurance Journal. “Home Insurance Premiums Rise as Americans Flock to Weather-Worn States.” (May 5, 2023). https://www.

insurancejournal.com/news/national/2023/03/30/714476.htm#:~:text=The%20U.S.%20P%2FC%20industry,according%20to%20

the%20rating%20agency. Last year, the property and casualty insurance market in the United States experienced a net under-

writing loss of $27 billion, the largest since 2011, due in part to the increasing incidence of extreme weather, among other factors

including inﬂation.

See for example: Kamin, Debra. “Home Insurance Premiums Rise as Americans Flock to Weather-Worn States.” (May 5, 2023).

New York Times. https://www.nytimes.com/2023/05/05/realestate/home-insurance-climate-change.html; Eaglesham, Jean. “Home

Insurers Including AIG Curb New Policies in Risky Areas Nationally.” (June 8, 2023). https://www.wsj.com/articles/home-insurers-

curb-new-policies-in-risky-areas-nationally-c93abac0?mod=markets_featst_pos1; and Asher-Schapiro, Avi and David Sherﬁnski.

“CORRECTED-FEATURE-Home insurance coverage falters as California wildﬁres worsen.” (May 17, 2023). https://www.reuters.com/

article/climate-change-insurance-california/corrected-feature-home-insurance-coverage-falters-as-california-wildﬁres-worsen-

idUSL8N36V0A4.