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January 5, 2023

Climate Risk Disclosure and Regulation Updates: September 2021


This series regularly highlights the evolving worldwide regulatory policies surrounding the reporting of climate risk exposur


Our Two Top Stories

On August 9, perhaps the most powerful shove propelling this movement forward occurred: the publication of the UN IPCC’s Sixth Assessment ReportAR6—the first full study of the physical science of climate change it has released since 2014. AR6 gained immediate notice around the world: a headline in London’s Daily Mail called it “A Doomsday Report of Apocalyptic Climate Change;” the U.N. Secretary-General called it “code red for humanity.”

As Jupiter scientists Dr. Pat Harr and Dr. Josh Hacker wrote on August 12:

AR6 is an unmistakable call to action from the scientific community to global decision-makers in the private and public arenas that—in addition to aggressively curtailing human-made causes of climate change—they must take immediate steps to develop and implement adaptation measures to make their societies, communities, economies, and infrastructure more resilient to climate-related disasters …

Another major development occurred in late July in the United States, where chair Gary Gensler began to sketch out the Security and Exchange Commission’s upcoming climate risk disclosure mandates. Speaking (on his own behalf, not the Commission’s as a whole) before the UN’s Principles for Responsible Investment
(UN PRI), he asked: “So why am I talking about climate risk? Simple: because investors are.”

Gensler revealed that three out of four of the 550 “unique” responses to the SEC’s March 2021 call for public comment on the matter “support mandatory climate disclosure rules,” and said he has directed his staff to prepare a mandatory climate risk disclosure proposal by the end of 2021—the first changes to SEC guidance on this subject since 2010.

Other Notable Developments

  • The Financial Stability Board called for global, consistent, and comparable climate-related financial risk disclosure, based on forward-looking metrics
UK, Europe, Middle East, Africa
  • The Bank of England (BoE) began stress testing banks and insurance firms for impacts of climate-related risk exposure
  • The European Banking Authority recommended the integration of ESG risks, including physical climate risk, into short- and medium-term strategic planning
  • The Swiss Federal Council instructed the Department of Finance to prepare a consultation draft mandating climate risk disclosures for the country’s large (more than USD $21.8m in assets and 500 employees) public companies, banks, and insurance companies, with rules taking effect as early as 2023.
  • The UK Department of Business, Energy and Industrial Strategy concluded in May its public consultation phase, as it prepares to introduce disclosure regulations on/by April 2022
  • BoE’s Sarah Breeden warned of severe “green swan” physical-climate-risk-related events that could cause systemic failures
USA and the Americas
  • On August 31, the Federal Insurance Office began solicitation of public comment on the impacts of climate risk on the insurance sector; feedback will end after 75 days. Treasury Secretary Janet Yellen: “Over the past 30 years, the incidence of natural disasters has dramatically increased and the actual and future potential cost to the economy has skyrocketed. We are now in a situation where climate change is an existential risk to our future economy and way of life.”
  • In late spring, President Biden signed the Executive Order on Climate-Related Financial Risk; by a single vote, the House of Representatives in mid-June passed the Climate Risk Disclosure Act 2021, with the bill facing an uncertain future in the Senate
  • A successful investor revolt forced Exxon to alter its board of directors and signals a shift to more aggressive climate risk management policies
  • The Federal Reserve privately urged lenders to disclose efforts to mitigate potential impacts of physical climate risk
  • Hawaii’s governor signed into law a bill mandating that sellers disclose sea-level rise data in real-estate transactions—a possible harbinger of similar laws in the continental United States that could lead to repricing, perhaps even a Minsky moment
  • Japan’s Financial Services Authority was reported to be planning mandatory climate risk disclosure regulations
  • The Hong Kong Monetary Authority urged institutions to monitor the “Changing Mandatory Disclosure Climate”
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