A wide-ranging report encourages regulators to take a concerted approach to combat climate-related risks to the US financial system.
By Jean-Philippe Brisson, Paul A. Davies, Nicola Higgs, Malorie R. Medellin, and Deric Behar
On October 21, 2021, the Financial Stability Oversight Council (FSOC) published a lengthy report on Climate-Related Financial Risk (the Report), marking the first time that FSOC has officially identified climate change as an emerging and increasing threat to US financial stability. FSOC issued the Report pursuant to a directive in President Biden’s May 2021 Executive Order on Climate-Related Financial Risk, which tasked FSOC to assess and collaboratively address climate-related impacts on US financial system stability.
The Report is another building block in the Biden Administration’s “whole of government” approach to combating climate change and the climate-related risks that threaten the US economy. The Report comes just days after the Administration issued “A Roadmap to Build a Climate-Resilient Economy” (the Roadmap), which heralded the Report as “the first step in a robust process of US financial regulators developing the capacity and analytical tools to mitigate climate-related financial risks.” (See this Latham post for more information.)
On March 17, 2021, the Commodity Futures Trading Commission (CFTC) 
On September 20, 2019, the US House Financial Services Committee passed H.R. 4329, the ESG Disclosure Simplification Act of 2019. The bill formed part of a suite of bills addressing environmental, social, and governance (ESG) disclosures that were the subject of hearings in the House Financial Services Committee in July, as discussed in 
Environmental, social, and governance (ESG) issues are playing an increasing role in the global leveraged finance market. As a result, borrowers who wish to access this market should consider paying closer attention to their ESG performance. The European Leveraged Finance Association (ELFA) has called for a coordinated approach to ESG disclosure among companies that wish to access leveraged loans, with the aim to help potential investors analyse ESG issues in a more consistent and uniform manner.
In September 2015, Bank of England Governor Mark Carney delivered his milestone Tragedy of the Horizon (Tragedy) speech. This speech warned that climate change will lead to financial crises, falling living standards, political instability, and profound implications for the financial sector and economy.
The European Union (EU) is committed to being the global leader in fighting climate change and implementing the Paris Agreement. Since climate change is increasingly viewed as a risk factor with respect to financial stability, the EU is now focusing on the financial sector in its efforts to implement the Paris Agreement and improve the sustainability and competitiveness of the EU economy.
The UK Stewardship Code (the Code) was originally published in 2010 following a review of corporate governance. The Financial Reporting Council (FRC) has responsibility for the Code, and promotes the long-term success of companies, outlines principles underlying an effective board, and fosters active investor monitoring and engagement of companies. All UK-authorised asset managers are required to produce a statement of commitment to the Code or to explain why the Code is not appropriate for their business model (the “comply or explain” approach discussed below). As such, there are 305 signatories to the Code, which primarily include asset managers and asset owners (pension funds, endowment funds, and charities).