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1 1 (May 11, 2021)

handle is hein.crs/govedgl0001 and id is 1 raw text is: SCongressional SResearch Service Climate Change and U.S. Financial Regulators: Overview and Recent Actions May 11, 2021 Under the Biden Administration, financial regulators have announced a range of new measures to address financial risks associated with climate change. The Treasury Department, the Securities and Exchange Commission (SEC), and the Federal Reserve have each announced new steps: The Treasury's announcement covers a range of issues including public spending, macroeconomic effects, and international cooperation. The SEC's addresses investor disclosure requirements relating to climate risks and the classification of funds marketed to investors as environmentally friendly. The Fed's relates to lending risks for individual financial institutions and to systemic financial risks related to climate change. This Insight provides an overview of these actions and how they interrelate. Background: Financial Sector Climate Risks An international standard-setting body, the Financial Stability Board, has noted that climate change can affect financial stability and asset prices either through physical risks such as more damaging storms and wildfires or through transition risks in which changes in government policies or market perceptions might lead to sudden asset price changes, such as for industries that emit greenhouse gases (GHGs). For instance, in any transition to a net-zero GHG emissions economy, fossil fuel industry assets might lose value. By some estimates, assets held by fossil fuel companies globally could drop between $250 billion and $1.2 trillion or become stranded assets in a possible transition away from fossil fuels. Estimates of potential losses to the financial sector from physical risks are also relatively large. In the housing market, one paper found that, as of 2019, the government-sponsored enterprises, Fannie Mae and Freddie Mac, guaranteed $6.88 trillion in home mortgage debt without pricing flood risk into their guarantee fees-risks ultimately backstopped by the U.S. government. Almost all the U.S. flood risk that is insured is also backstopped by the U.S. government through the National Flood Insurance Program. There is evidence that investors are already seeking to accurately price climate risks into asset prices. In the roughly $4 trillion U.S. municipal bond market, one paper concluded that counties more likely to be Congressional Research Service https://crsreports.congress.gov IN11666 CRS INSIGHT Prepared for Membersand Committeesof Congress

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