The increasing impacts of extreme weather and the growing awareness of the risks of climate change have led the U.S. banking regulatory agencies to initiate efforts to determine how best to address possible significant weather and climate effects on the U.S. banking system. Recent bank failures have shown the need for risk management practices that address a broad range of risks. Climate change should undoubtedly be included. The challenges in developing these regulations include acting in time to mitigate the risks of the rapidly changing climate while recognizing the significant uncertainties in our understanding of these changes. While the scientific community knows much about the physics and chemistry of climate change, there are considerable uncertainties in applying that knowledge to developing quantitative climate-related banking models and appropriate bank regulations. This article addresses significant scientific, technical, legal, and regulatory issues underlying climate-related banking regulation. It concludes with recommendations for what may come next in developing these regulations.
The Financial Stability Oversight Council (FSOC) is the federal “systemic risk regulator.” The FSOC identifies and resolves issues with the nation’s financial institutions that threaten the financial system. Its ten voting members include bank regulators and other regulatory agencies significantly affecting the U.S. economy and financial systems.1 The FSOC identified climate change as an emerging threat to financial stability in its report in October 2021.2 “In the United States and globally, climate-related impacts in the form of warming temperatures, droughts, wildfires, intensifying storms, and other climate-related events are already imposing significant costs on the public and the economy. As climate change continues, costs are expected to grow, and climate-related risks to the financial system are also expected to increase.”3
Most FSOC members have written reports or given congressional testimony about climate risks. The CFTC was the first member to publish a report on climate change risk to the U.S. financial system and economy. “Climate change poses a major risk to the stability of the U.S. financial system and its ability to sustain the American economy.”4 The SEC has proposed a rule requiring public companies to disclose their climate-related risks and their measures to mitigate them.5 The Federal Reserve (the Fed) is conducting a pilot project with six of the largest U.S. banks 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 financial risks.”6 The chair of the FDIC addressed their roles in mitigating climate change risks to the banking system in congressional testimony in November 2022.7 “To understand and address the financial risks that climate change poses to financial institutions and the financial system, fostering an open dialogue with our counterparts in the U.S. and international financial regulatory bodies is important. For these reasons, the FDIC established an internal, cross-disciplinary working group to assess the safety, soundness, and financial stability considerations associated with climate-related financial risk and to develop an agency-wide understanding of climate-related financial risk.”8
Agency Charters and Actions for Potential Climate-Related U.S. Banking Regulation
The federal banking regulators are the Office of the Comptroller of the Currency (OCC), the Fed, and the FDIC. However, concerning climate-related regulation, the SEC, the CFTC, and the Environmental Protection Agency (EPA) also have roles that may affect the banks significantly. This section summarizes the relevant aspects of their charters and their climate-related activities.
The OCC is an independent bureau within the U.S. Department of the Treasury. It charters, regulates, and supervises national banks and federal savings associations. The OCC’s primary objective is to ensure the safety and soundness of these institutions, promote fair and equal access to financial services, and enforce compliance with laws and regulations. Their strategic plan describes their activities concerning climate change.9
The OCC actions are part of Treasury’s approach to climate change.10 Treasury established a Climate Hub coordinating climate policy across all department offices, a new leadership position on their economic analysis team dedicated to climate issues, and a new office to implement the clean energy investments under the Inflation Reduction Act.
The Fed supervises financial institutions to ensure they comply with rules and regulations and operate safely and soundly. They created an internal Supervision Climate Committee and Financial Stability Climate Committee. The Fed’s financial stability monitoring framework is flexible enough to incorporate many critical elements of climate-related risks.11 Results from the Fed’s pilot climate project should be available by the end of 2023.
The FDIC charter grants it the authority to insure deposits in banks and savings associations to accounts up to $250K, providing some protection to depositors in the event of bank failures. The FDIC also acts as a regulatory body, supervising and examining financial institutions for safety and soundness and addressing risks to the banking system’s stability.
The FDIC, the Fed, and the OCC have joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) to foster collaboration and share best practices in addressing climate-related financial risks globally. This complements existing work with the Basel Committee’s Task Force on Climate-related Financial Risks, the Bank of International Settlements, and other appropriate international organizations.
The FDIC requested comments in April 2022 on draft principles for a high-level framework for the safe and sound management of exposure to climate-related risks for large financial institutions.12 The FDIC and OCC are collaborating with the Fed to bring the three agencies into alignment on these principles. There have been many extensive responses to these requests from these three agencies. Issues raised in these responses are discussed in the following sections.
The SEC charter empowers it to protect investors, maintain fair and efficient markets, and facilitate capital formation. It enforces securities laws, promotes transparency and disclosure, and prevents fraudulent and manipulative practices. They view climate-related financial disclosures as tantamount to other required financial disclosures. Since the large banks are public companies and manage large investment portfolios, the regulation of disclosures about the impacts of climate change on the banks may become part of the SEC mandate, depending on the final form of the proposed rule and likely subsequent litigation and court rulings. Key issues include the strength of the connections between climate-related disclosures and tangible financial impacts and the cost of preparing the disclosures. Would the disclosures provide material information for investor protection?13
The CFTC regulates the commodity futures and options markets in the United States. The CFTC has shown increasing interest in addressing climate-related risks and their potential impact on financial markets, including carbon markets.14 They have initiated efforts to assess climate risk, engage with stakeholders on climate-related issues, and explore ways to incorporate climate considerations into its regulatory framework to promote market resilience and stability in the face of climate-related challenges. Its 2020 report described the potential for systemic risk, which would undoubtedly impact the banking industry.
The EPA’s climate change website describes its actions as “critical to EPA’s mission of protecting human health and the environment. The EPA established the Greenhouse Gas Reporting Program (GHGRP) in response to the Clean Air Act Amendments of 1990. The EPA tracks and reports greenhouse gas emissions, leverages sound science, and works to reduce emissions to combat climate change.”15 Although the EPA is not a member of the FSOC and is not involved directly in banking regulation, its information is essential to analyzing climate-related effects on banking customers and operations.
In response to the SEC’s proposed rule on climate-related disclosure, the EPA provided a helpful summary of the distinct and complementary roles of the SEC and EPA concerning these disclosures.16 “The EPA GHGRP requires certain facilities to report their emissions of GHGs while the Proposed SEC Rule requires registrants to disclose information about climate-related risks, which includes information on GHG emissions.”17 Among its many activities, the EPA regulates emissions that are significant factors causing climate change. The SEC proposes to regulate company disclosures about climate risks to provide information to investors and to promote market stability.
Observations of Climate Change
Numerous compelling observations show that climate is changing.
- Rising Temperatures: Since 1981, the rate of warming is 0.32° F (0.18° C) per decade. The ten warmest years in the historical record have all occurred since 2010.18 June 2023 was the warmest June globally in recorded history, and the first half of July 2023 includes the ten hottest days on record.19
- Melting Ice and Glaciers: Between 1979 and 2021, sea ice cover at the end of summer shrank by 13.0 percent per decade relative to the 1981–2010 average.20
- Sea-Level Rise: In the past three decades, the global mean sea level grew at an average of 3.4 millimeters per year. In January 2022, the mean sea level was 102.2 millimeters higher compared to the same month in 1993. Global sea level rise derives from two main factors: water expansion due to rising temperatures and increased volume from melting ice caps and glaciers.21
Other areas are ocean temperatures and circulation, acidification, and impacts on biodiversity.22
We also see rapid increases in extreme weather events’ financial and economic impacts. The NOAA website Billion-Dollar Weather and Climate Disasters provides data on U.S. weather and climate events causing more than $1B in inflation-adjusted direct damage.23 NOAA categorizes these disasters into drought, flooding, freeze, severe storm, tropical cyclones, wildfires, and winter storms.
Figure 1 shows the growth of the total cost of these events. The growth rate is far faster than inflation and GDP growth. The graph shows considerable year-to-year volatility.
Climate Science—Successes and Limitations
Climate scientists have made significant progress in recent years. Successes include:
- Improved Climate Models: Climate models have become more sophisticated and accurate in simulating the Earth’s climate system. The Coupled Model Intercomparison Project (CMIP) is a collaborative effort among climate modeling centers worldwide to evaluate and compare global climate models.24 CMIP5 refers to the fifth phase of this project, which was conducted from 2008 to 2014, while CMIP6 refers to the sixth phase, conducted from 2015 to 2022. There are more than 100 models from over 50 centers globally in CMIP6. The spread in predictions of climate models, a measure of model uncertainty, can be evaluated by comparing the range of projections across different models within a CMIP phase. The prediction spread varies depending on the analyzed variables (e.g., temperature, precipitation, sea ice extent, etc.) and the scenarios being considered (e.g., different greenhouse gas emission pathways). CMIP6 models have improved with a narrower spread compared to CMIP5 models. This can be attributed to several factors, including advancements in model development, increased model resolution, improved representation of physical processes, and better accounting for uncertainties in model parameterizations. However, the spatial resolutions and spread in the CMIP6 model predictions are too large to provide confident estimates of regional climate and the probabilities of extreme events.25
- Understanding Extreme Events: The most recent IPCC report, AR6, provides new information on the linkages between climate change and increasing extreme weather events. “Since the IPCC Fifth Assessment Report (AR5), there have been important new developments and knowledge advances on changes in weather and climate extremes, in particular regarding human influence on individual extreme events, on changes in droughts, tropical cyclones, and compound events, and projections at different global warming levels (1.5°C–4°C). These and new evidence at regional scales provide a stronger basis and more information for the AR6 assessment on weather and climate extremes.”26
- Advances in Data Collection: Significant advancements have been made in collecting and analyzing climate data. New geostationary and low earth orbiting satellites provide new data types for the climate record.27 Many U.S. states have developed mesonets, regional networks with sensors to collect data at a finer scale than the national systems. Since 2009, the National Mesonet Program (NMP) has grown to become a Program of Record within the National Oceanic and Atmospheric Administration’s (NOAA) National Weather Service (NWS), encompassing multitudes of surface in-situ networks, mobile observations, and remote sensing data to improve forecasts and support critical decisions made daily across the country.
Despite significant advances, there are substantial limitations in our understanding of climate science.
- Uncertainties in Projections: While climate models are improving, there are still uncertainties associated with long-term projections. Cloud formation and nonlinear feedback mechanisms (notably in high latitudes) pose challenges in predicting climate. Many scientists have started to develop new approaches to climate models that will address current limitations.28
- Regional Variability: Climate science cannot yet project regional climate changes accurately. The CMIP6 global models do not have the temporal and spatial resolution to predict accurately on a regional scale. Regional variations in climate patterns make it difficult to predict the impacts of climate change locally, hindering targeted adaptation strategies. There are many promising developments in regional climate models, but limits in computational resources constrain their applicability.29
- Limited Historical Data: Climate science relies on historical data to understand past climate changes and validate models. However, there are gaps in data availability, especially for remote regions and prehistoric periods, which limit our comprehensive understanding of long-term climate variability.
- Societal and Economic Factors: Implementing effective climate policies and achieving meaningful emissions reductions involves complex socioeconomic and political considerations. Moreover, the gap between what the banking industry needs for climate-related decision-making and what the current science can provide is large.30
Addressing these limitations and challenges is an ongoing endeavor in climate science. Continued research, improved data collection, enhanced modeling techniques, and interdisciplinary collaboration are crucial for advancing our understanding of the climate system and informing effective climate-related action.
Climate science can provide valuable insights for improved banking regulation, but decision-making, policy implementation, and regulation require interdisciplinary collaboration adding to scientific knowledge. This implies the need for increased cooperation among the scientific, technical, legal, and public policy communities.31
Banks have several challenges in assessing potential impacts of climate change on their customers and operations. Among these challenges are the difficulties in analyzing the effects of GHG emissions by the banks’ customers (i.e., financed emissions). Reasons include the lack of relevant historical data, the need to predict beyond the nine-quarter horizon required by Dodd-Frank, and the uncertainties in modeling the bank’s and its customers’ decisions over these extended periods. Banks also have difficulty developing credible ways to integrate climate data into their loan default and loss severity models.32
The Network for Greening the Financial System (NGFS) has developed six scenarios for banks to manage climate-related risks, align their strategies with climate goals, and enhance transparency and disclosure practices.33 These scenarios include models of the evolution of critical climate-related variables (e.g., CO2, carbon price) that affect physical and transition risks for the banks’ portfolios (e.g., loan, market) under various assumptions about national policies and the economies in different geographical regions.
These scenarios are used in climate-related tests, including the Fed’s pilot project. Using these scenarios has advantages for banks and supervisors. They enable testing under very different sets of assumptions, and since they are standard for the industry, they help with comparisons among banks.
While the NGFS climate scenarios provide a valuable framework for banks and financial institutions to assess climate-related risks, significant limitations exist. First, the scenarios are deterministic and cannot capture uncertainties in analyzing potential climate-related impacts on bank portfolios and operations. Additionally, the scenarios were developed primarily for large banks. Smaller banks with different customer profiles and geographical concentrations will need other models to test for climate effects.
Moreover, the NGFS scenarios simplify assumptions about economic and policy pathways, technological advancements, and societal responses. For example, the NGFS scenarios use the damage function proposed by Kalkuhl and Wenz. This damage function is shown in Figure 2, with other damage functions described in the literature.34 A climate damage function is a multiplier of an economic model output (e.g., GDP) that models the loss as a function of climate warming. These damage functions show model losses of up to twenty percent as the average temperature increases to 4 deg C.
Figure 2 shows three problems with these damage functions. First, the damage depends only on the temperature anomaly. Figure 1 shows real-world weather and climate-related damage that depends on many factors besides temperature. Second, the damage functions are monotonic with none of the volatility of Figure 1. Third, the damage functions differ significantly without any uncertainty description.
Additionally, these scenarios do not capture the probability of extreme events and possible climate tipping points. Climate tipping points refer to critical thresholds or thresholds in the Earth’s climate system beyond which abrupt and potentially irreversible changes can occur. These points represent a level of evolution where a small additional perturbation can lead to significant, often nonlinear, shifts in the climate system. Many possible tipping points could be passed in the next decade or two.35 The term “tipping point” does not appear in the most recent NGFS scenario documents. These risks are not represented in the current generation of bank climate testing.
Finally, these scenarios do not capture other risk factors, including governance and reputational risks. While climate-related testing and possible regulation for banks are in very formative stages, it is essential to understand that these scenarios do not capture the complexity of real-world dynamics and limit the accuracy and representativeness of the scenario outcomes in the current projects. The combination of the current El Nino phenomenon with the growing GHG concentrations is producing record heat globally in the summer of 2023 and likely for the next few years.36 Such events are not captured in the current bank scenarios.
Climate models result from integrating computational models from diverse scientific disciplines (e.g., atmospheric physics and chemistry, physical and biological oceanography, land processes, polar science, etc.). These models are implemented with millions of lines of software and require the most powerful computing platforms. They are vastly more complex than the current banking regulation models. There will be a significant learning curve before policymakers, regulators, and bankers can use such models for risk management.
Integrated assessment models (IAMs) result from integrating a climate model with a financial or socioeconomic software model using various “damage and abatement functions.” They have been used to estimate the social cost of carbon and in different economic research projects.37 The financial and socioeconomic models are much smaller than the climate models and can be executed on PCs. The integration uses reduced-order climate models or summary climate model outputs to run the IAMs. This concept could be adapted for banking applications and eliminate working directly with large climate models. However, many issues would need to be addressed, notably model risk management.
Another essential technical issue for banking regulation is model risk management.38 Banks use models for many purposes, including predicting risks and losses from various transactions, including real estate mortgages and credit card accounts. Following the Dodd-Frank Act, the Fed issued guidance for managing risks associated with these models. This guidance is updated for the annual stress tests.39 A critical aspect of model risk management is the separation of teams that test and validate the models from the teams that develop the models.
There are no requirements for climate models or IAMs to undergo a model risk management process analogous to the bank process. There is no analog of the Dodd-Frank Act for climate models. The climate models differ significantly from the bank models, including the above scale and complexity. These models are open-source community software developments that rely primarily on testing through intercomparison projects, notably CMIP. These developments have limited funds for testing, and there are many ways in which the models can be compared (e.g., global averages over decades, probabilities of extreme events, differences in predictions about temperatures, precipitation, cloud cover, etc.). Climate model validation is an active subject of research.40 However, it is in an early stage compared to the banking process.
These software management and validation challenges will increase as the climate models move to exascale computers to get the computational power necessary to incorporate higher spatial and temporal resolutions with improved physics and chemistry models to capture asset-level environmental impacts on bank portfolio holdings. However, we must resolve these problems to create viable climate-related banking regulations.
There are many new developments in financial regulatory technology (RegTech), with the objectives of improved accuracy and reduced costs.41 Many of these developments incorporate various types of AI technology. Thus far, the significant applications of RegTech products have been fraud detection and process efficiency. Future climate-related RegTech products may use many forms of AI technology to improve the development and implementation of climate-related banking regulations.
Legal and Regulatory Issues
The requests from the banking regulators for information concerning the draft principles for a high-level framework for the safe and sound management of exposures to climate-related financial risks for large financial institutions have received many responses, raising significant legal and regulatory issues. Here are three.
- Climate risk is not a separate risk category for financial institutions.42 It affects all traditional risk categories (e.g., liquidity, market, credit, operational, litigation, reputational). Accordingly, any climate-related legislation and regulatory guidance must help financial institutions to understand the capabilities expected by regulators to manage climate risks and develop effective planning and reporting processes. The Fed pilot only addresses loan risks in a few large banks. Any effective regulation must have a much broader scope and clarify the relationships among the regulators to avoid duplication and inconsistency.
- Given the significant uncertainties in understanding climate change, legislation and regulation must be principles-based rather than prescriptive.43 Climate-related regulation, including disclosures, must be separate from the current Dodd-Frank requirements and stress tests in the near term. They do not impose new capital reserve requirements based on model estimates of climate change.44 The current model estimates have too much uncertainty to impose specific capital reserves. More scientific and technical development must occur before such capital reserve requirements can be set. Other aspects of the feedback included the need for further clarifications, including implications of climate regulations for relationships with foreign banks.
- The legislation and regulations for climate should integrate the evaluation of bank climate risk into current or updated evaluation frameworks; for example, explain how a regulator would analyze climate risk as part of the Federal Financial Institutions Examination Council’s “Uniform Financial Institutions Rating System.” This system, known as CAMELS, includes Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. It has been effective, and its use with climate-related risks would be helpful to the banks. However, it is increasingly evident that this rating system and its implementation need modernization. The congressional testimony about the recent bank failures noted problems related to the CAMELS approach and its regulatory implementations.45
It is clear from the limited Fed climate scenario pilot and the reactions to the proposed rule on climate-related financial disclosures by the SEC that the legal and regulatory framework for banking regulation is progressing slowly. The challenge is achieving significant progress before the climate reaches substantial tipping points, making progress more difficult.
Recommendations for What Is Next for Climate-Related Banking Regulation in the United StateS
The recommendations below require developments that will occur over varying times ranging from short (one to three years) to much longer (decade+).
- Because of the urgency to address the climate risks to the banking industry, we need to recognize that the legal and regulatory measures will need to evolve with science and technology. There must be cooperation between the regulators and the industry to achieve an effective balance and some near-term progress.
- We must have more credible climate change models adapted to banking and scenarios used in bank regulation. The spreads on which to base quantitative regulation (e.g., capital reserve requirements) in current climate model predictions are too large.
- There is a growing recognition that climate change is not only a scientific, social, and political issue but also an economic and financial one. Moreover, the changes are happening more rapidly and less predictably on a larger scale, so more government action is necessary in areas like tax incentives, carbon markets, and sponsored research.46 The Inflation Reduction Act was a significant step, but much more is needed. Such measures will impact many banking aspects, so the regulations must be sufficiently flexible to adapt to this changing environment. Developing such flexible rules will require significant industry involvement in their formulation.
- Given the importance of climate models, there must be increased resources and improved software management and model validation processes. Additionally, the software in the bank regulation processes needs more attention. The recent DFAST testing showed significant gaps between Fed- and bank-estimated depletions that were more than double from previous years.47 These challenges will increase when considering climate factors in the future.
- Besides improving the algorithms and software for climate models, the data used by these models must have much finer granularity than we have today. This is true for the earth science data and the asset-related information the banks use for their loan and investment portfolios. Improving the coverage and density of earth science information, particularly at high latitudes, is essential for assessing risks such as tipping points. Additional data (e.g., from insurance contracts) for bank portfolios such as mortgage loans are vital in analyzing climate and environmental risk with consequent impacts on default and loss severity probabilities. The computing technology will be available for managing and processing these significantly increased data sets.
- The scenario modeling in the bank regulation testing must also improve. Using a few deterministic scenarios like the current NGFS process is inadequate for providing risk management probability estimates. A simulation-based approach using Monte Carlo techniques would provide better information.48
- Finally, coordination and clarification of the legal and regulatory frameworks for the banking regulators is essential. They should consider extending the Climate Hub beyond the Treasury Department to all the involved regulators.
1. The ten voting members of the FSOC are (1) Secretary of the Treasury (chair), (2) Chair of the Federal Reserve, (3) Comptroller of the Currency, (4) Director of the Consumer Financial Protection Bureau, (5) Chair of the U.S. Securities and Exchange Commission, (6) Chair of the Federal Deposit Insurance Corporation, (7) Chair of the Commodity Futures Trading Commission, (8) Director of the Federal Housing Finance Agency, (9) Chair of the National Credit Union Administration Board, and (10) an independent member (with insurance expertise) appointed by the president.
2. FSOC, Report on Climate-Related Financial Risk (Oct. 21, 2021).
3. Id. at 3.
4. CFTC, Managing Climate Risk in the U.S. Financial System (Sept. 9, 2020).
5. Press Release, Sec. & Exch. Comm’n, SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors (Mar. 21, 2022). The final rule is expected this year.
6. Press Release, Fed. Rsrv. Bd. (Sept. 29, 2022).
7. Martin Gruenberg, Remarks by Acting Chairman Martin J. Gruenberg Before the House Financial Services Committee on Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions (Nov. 16, 2022).
9. Off. of the Comptroller of the Currency, Strategic Plan—Fiscal Years 2023–2027 (Sept. 2, 2022).
10. Press Release, Dep’t of the Treasury, Remarks by Secretary of the Treasury Janet L. Yellen at the Coalition of Finance Ministers for Climate Action Event (June 15, 2023).
11. Fed. Rsrv. Bd., Financial Stability Report (May 2023).
12. FDIC, Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions, 87 Fed. Reg. 19,507 (Apr. 4, 2022).
13. Robert F. Brammer, Science and Technology Issues in Regulating Climate-Relate Disclosures, 18 SciTech Law., no. 1, Fall 2021, at 4.
14. Press Release, CFTC, Opening Statement of Commissioner Christy Goldsmith Romero: The CFTC’s Role with Voluntary Carbon Credit Markets, (July 19, 2023).
17. Id. at 3.
19. Eamon Akil Farhat, The 10 Hottest Days Ever Put People and Livelihoods at Risk, Bloomberg News, July 13, 2023.
22. Hiroko Tabuchi, 101°F in the Ocean off Florida: Was It a World Record?, N.Y. Times, July 26, 2023; Peter Ditlevsen & Susanne Ditlevsen, Warning of a Forthcoming Collapse of the Atlantic Meridional Overturning Circulation, Nature Commc’ns, July 25, 2023.
24. The project was established in 1995 by the World Climate Research Programme (WCRP).
25. Oluwafemi E. Adeyeri et al., The Trend and Spatial Spread of Multisectoral Climate Extremes in CMIP6 Models, 12 Sci. Rep., no. 21000, Dec. 5, 2022.
27. NOAA NESDIS, Earth from Orbit: NOAA Debuts First Imagery from GOES-18 (May 11, 2022); NOAA NESDIS, Revolutionizing Weather Forecasting: How LEO Satellites Have Changed the Game (June 28, 2023).
28. Tim Palmer & Bjorn Stevens, The Scientific Challenge of Understanding and Estimating Climate Change,” Proc. of the Nat’l Acad. of Sci. (Dec. 3, 2019).
29. Filippo Giorgi, Thirty Years of Regional Climate Modeling: Where Are We and Where Are We Going Next?, 124 J. Geophysical Rsch.: Atmospheres 5695 (June 2019).
30. Tanya Fiedler et al., Business Risk and the Emergence of Climate Analytics, 11 Nature Climate Change 87 (Feb. 2021).
31. A recent example of such collaboration is the growing relationship between NOAA and the USPTO to stimulate climate-related innovation and invention.
32. Francisco Covas, Challenges in Stress Testing and Climate Change, Bank Pol’y Inst. (Oct. 19, 2020); Jean-Marie Delport et al., Integrating Climate Risk into Risk Management Frameworks: Know Your Modelling Blind Spots (Feb. 7, 2023).
33. Network for Greening the Fin. Sys., NGFS Scenarios for Central Banks and Supervisors (Sept. 2022).
34. William Nordhaus & Paul Sztorc, DICE 2013R: Introduction and User’s Manual, at 97 (2d ed. 2013); Peter H. Howard & Thomas Sterner, Few and Not So Far Between: A Meta-analysis of Climate Damage Estimates, 68 Env’t & Res. Econ. 197 (2017); Matthias Kalkuhl & Leonie Wenz, The Impact of Climate Conditions on Economic Production. Evidence from a Global Panel of Regions, 103 J. Env’t Econ. & Mgmt. 102360 (2020); Martin L. Weitzman, What Is the “Damages Function” for Global Warming—and What Difference Might It Make?, 1 Climate Change Econ., No. 1, 2010, at 57.
35. Timothy M. Lenton et al., Climate Tipping Points—Too Risky to Bet Against, Nature (Apr. 9, 2020).
36. Press Release, World Meteorological Org., Global Temperatures Set to Reach New Records in Next Five Years (May 17, 2023).
37. Gilbert Metcalf & James H. Stock, Integrated Assessment Models and the Social Cost of Carbon: A Review and Assessment of U.S. Experience, 11 Rev. of Env’t Econ. & Pol’y 80 (2017).
38. M. Gerst et al., Managing Model Risk in Financial Climate Risk Assessment (IIASA Working Paper, 2023); Abhishek Anand et al., Using Model Risk Management to Address Climate Analytics, McKinsey, Jan. 2023.
39. Fed. Reserve, Dodd-Frank Act Stress Test Publications: 2023 Supervisory Stress Test Methodology (June 2023).
40. Ziheng Sun et al., Advanced Cyberinfrastructure for Intercomparison and Validation of Climate Models, 123 Env’t Modeling & Software 104559 (Oct. 17, 2019).
41. RegTech100, Profiles of the REGTECH100 (Dec. 9, 2022).
42. In this sense, climate risk is like data privacy risk in impacting nearly all activities and their relationships. There may be some valuable analogies to use in formulating climate-related regulations.
43. Recent SEC Comment Letter Reveals the Difference Between Prescriptive-Based and Principles-Based Rules, Bass, Berry & Sims PLC (Nov. 5, 2020).
45. U.S. Gov’t Accountability Off., Preliminary Review of Agency Actions Related to March 2023 Bank Failures (May 24, 2023).
46. L. DePillis, Pace of Climate Change Sends Economists Back to Drawing Board, N.Y. Times, Aug. 25, 2022.
47. L. Migliorato & J. Walker, US Banks’ Stress Test Projections Stray Further from Fed’s in 2023 (July 17, 2023).
48. Robert Brammer et al., Quantifying the Financial Impacts of Climate Change (Sept. 2022).