CFTC Wades Into Climate Regulation

On June 2, 2022, the Commodities Futures Buying and selling Fee (CFTC) issued a Request for Data (“RFI”) for “public comment on climate-related financial risk to better inform its understanding and oversight of climate-related financial risk as pertinent to the derivatives markets and underlying commodities markets.”  In accordance with the RFI, the CFTC is considering “potential future actions including, but not limited to, issuing new or amended guidance, interpretations, policy statements, regulations, or other potential Commission action within its authority under the Commodity Exchange Act as well as its participation in any domestic or international fora.” 

Particularly, the RFI issued by the CFTC is sort of wide-ranging, and engages with quite a few features of the CFTC’s authority, specializing in each systemic and slim points.  For instance, the CFTC has, amongst different issues, issued a broad request for touch upon how “its existing regulatory framework and market oversight . . . may be affected by climate-related financial risk” and “how climate-related financial risk may affect any of its registered entities, registrants, or other market participants, and the soundness of the derivatives markets.”  It’s exhausting to think about a broader request by the CFTC–it is successfully asking for enter on how “climate-related financial risk” might affect any portion of its regulatory purview.  Conversely, the CFTC has additionally posed very particular questions, together with as to how the CFTC “could enhance the integrity of voluntary carbon markets and foster transparency, fairness, and liquidity in those markets,” and the way it may “adapt its oversight of the derivatives markets, including any new or amended derivative products created to hedge-climate-related financial risk.”  Briefly, based mostly upon the RFI, the CFTC may conceivably undertake a slim or broad view of the way it ought to regulate its rules to account for climate-related monetary threat.  Notably, nonetheless, the CFTC additionally requested if there have been “ways in which updated disclosure requirements could aid market participants in better assessing climate-related risks,” which means that the CFTC might echo the SEC’s current proposed rule for necessary local weather disclosures. 

Most importantly, the truth that yet one more monetary regulatory company is concentrated on “climate-related financial risk” means that the Biden Administration is keen to expend important sources and power in participating in one of these regulation to advance its local weather agenda.  When thought of in tandem with the SEC’s current proposed guidelines for necessary local weather disclosures and to fight greenwashing, it’s obvious that there’s a important regulatory concentrate on local weather points and the monetary markets.  This transfer by the CFTC additionally means that the Biden Administration will totally help the SEC’s proposed guidelines in opposition to the inevitable authorized problem.  (And, based mostly upon the concurrences of the Republican CFTC commissioners to this RFI, it’s possible that any climate-related regulation proposed by the CFTC may even be topic to authorized problem, possible on the grounds that such a regulation exceeded the CFTC’s authority.)  Most significantly, this transfer by the CFTC–that seeks to “understand how market participants use the derivative markets to hedge and speculate on various aspects of physical and transition [climate] risk”–demonstrates that the regulatory concentrate on local weather and the monetary markets will stay a high precedence for the foreseeable future.  

The Commodity Futures Trading Commission immediately unanimously voted to launch a Request for Data (RFI) to hunt public touch upon climate-related monetary threat to higher inform its understanding and oversight of climate-related monetary threat as pertinent to the derivatives markets and underlying commodities markets.

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