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Climate risk regulation rundown: April 2022

May 4, 2022

What happened in climate-related financial regulation last month, and what’s coming up

Lael Brainard was confirmed by the US Senate as the next Vice Chair of the Federal Reserve on April 26. Brainard has served as a Fed Governor since 2014, and previously worked as Under Secretary of the US Treasury Department.

In recent years, Brainard has spoken out in support of the central bank taking an active role in addressing climate-related financial risks. In a 2019 speech, Brainard said the Fed “will need to assess the financial system for vulnerabilities to important climate risks” and that it will be increasingly important that it “take into account the effects of climate change and associated policies in setting monetary policy.”

In October 2021, she spoke in favor of issuing supervisory guidance to big lenders on managing their climate-related risk and announced a Fed effort to develop climate scenarios that will “help with risk identification and suggest useful lessons to inform subsequent improvements in modeling, data, and financial disclosures.”

Separately, on April 15 President Biden announced his intent to nominate Michael Barr to be the Fed’s next Vice Chair for Supervision. Biden’s first pick for the role, Sarah Bloom Raskin, bowed out of the process in March after lawmakers made plain their opposition to her views on managing climate-related financial risks.

Barr is currently a law professor and previously served in the Obama administration as the Treasury’s assistant secretary for financial institutions, in which capacity he helped develop legislation regulating Wall Street known as the Dodd-Frank Act.


Research published by the Federal Reserve Bank of New York found that carbon-intensive companies and those with poor environmental records often have lower credit ratings and higher yield spreads — especially when their operations are in states with stricter environmental regulations and enforcement. 

The bank used an initial data set of 5,548 bonds issued by 830 US companies between 2009 and 2017. Data from environmental ratings firm Sustainalytics and emissions data from climate reporting nonprofit CDP was used to differentiate the bonds by their climate profile. 

The Fed researchers also evidenced that climate regulatory risk “causally affect bond credit ratings and yield spreads” and that the 2015 Paris Agreement seems to have elevated the regulatory risk for firms that are in carbon-intensive industries or have poor environmental performance.


The Securities and Exchange Commission (SEC) will hold a virtual meeting of its Small Business Capital Formation Advisory Committee on May 6 to scrutinize the regulator’s proposed rules on climate-related disclosures.

The Committee is designed to receive advice and recommendations on SEC rules from the US small business community. The May 6 meeting will focus on the potential impacts the SEC proposed rule, which was released on March 21, could have on smaller public companies and companies seeking to be listed on public exchanges. 


The National Association of Insurance Commissioners (NAIC) approved a new standard on April 8 that requires firms to publish reports aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). 

The mandate covers insurers in 15 states where the local commissioner requires entities to respond to the NAIC’s annual Climate Risk Disclosure Survey.

The new standard means nearly 400 insurance companies and groups will have to produce TCFD-aligned reports this year, up from just 28 in 2021.


The Texas Comptroller of Public Accounts sent letters to 100 asset managers asking after their fossil fuel exclusion policies in line with a new law that prohibits state entities from investing with institutions that boycott energy companies. 

Trade publication Responsible Investor reported on April 20 that Vanguard, State Street, and Goldman Sachs Asset Management were among those contacted.

A Texas law passed in September 2021 prevents state agencies — including public pension funds like the $201 billion Employees Retirement System of Texas — from allocating funds to firms that restrict fossil fuel investments for ethical or environmental reasons. They can continue to use firms that restrict such investments for strictly financial reasons, however. [Corrected to clarify that under the Texas law firms can restrict fossil fuel investments for strictly financial reasons].

Responses to the letters sent by the Comptroller will determine which companies are placed on the state’s prohibited list.

A firm that fails to give details to the Comptroller of its fossil fuel policies within 60 days of receiving a letter will be presumed to be boycotting energy companies and added to the list.

The Comptroller sent a first round of letters to 19 large asset managers on March 16.


The California Department of Insurance (CDI) released a report on April 18 detailing state insurers’ investments in oil, gas, and coal companies.

This shows that Golden State insurers had $536 billion invested in fossil fuels in 2019 in total, compared with $477 billion in 2018. It also reveals they had $11.4 billion allocated to green bonds in 2019, up from $5 billion the year prior.

“This report is part of my continued comprehensive strategy to address insurance companies’ fossil fuel exposures and hold them accountable while letting consumers judge these companies’ progress on climate action for themselves,” said CDI Commissioner Ricardo Lara.


Canada’s Office of the Superintendent of Financial Institutions (OSFI) will require federally regulated financial institutions to disclose their climate risks in reports based on the Task Force on Climate-related Financial Disclosures (TCFD) from 2024.

That’s according to a budget proposal from the Government of Canada published on April 7. This document also says that firms will be expected to “collect and assess information on climate risks and emissions from their clients.” The government will “move forward” with efforts to make pension funds produce ESG disclosures that cover climate-related risk, too.

The budget also earmarked dollars for the International Sustainability Standards Board (ISSB), which has set up an office in Montreal. The organization, which is overseeing the development of a global baseline of sustainability reporting, will get CAD$8 million over three years under the proposal.

On April 21, OSFI published its first Annual Risk Outlook, in which it described the steps it will take to tackle climate-related financial risks this year. The Outlook says OSFI and the Bank of Canada will run two climate analysis exercises with financial institutions: one scrutinizing the resilience of their residential mortgage portfolios to flood risk, and a second assessing the potential impacts of transition risk on their securities holdings.

The European Central Bank (ECB) said that financial supervisors should be able to use existing European Union (EU) capital rules to shield banks from climate-related physical and transition risks.

In an opinion paper sent to the European Parliament and Council on April 27, the ECB recommended that the systemic risk buffer (SyRB) — a capital add-on that EU member state watchdogs can raise or lower for banks under their supervision — be clarified so that it can be applied to those parts of banks’ portfolios that are particularly vulnerable to physical and/or transition risks. “This could be particularly effective in tackling systemic risks arising from climate change in a targeted manner, thus further incentivising its [the SyRB’s] active use,” the ECB wrote.

In the same opinion paper, the ECB welcomed the European Commission’s decision to integrate ESG risks into the bloc’s regulatory framework for banks. It also applauded the new legal requirement that forces lenders to produce written plans that address the climate and environmental risks they could face if they stray from the EU’s policy targets.


The European Banking Authority (EBA) also supported the SyRB to capitalize banks against climate-related risks in a response to a ‘Call for Advice’ from the European Commission on April 29. [Corrected link to, and date of, EBA response].

The paper said that the “exposure of banks to assets’ sensitive to environmental risks could be given consideration under the sectoral SyRB framework,” but that in order to work appropriately, “some targeted adaptations would need to be made.” Specifically, there would have to be a “classification system of exposures” for sectors “associated with environmentally harmful or sensitive activities” and an expansion of the SyRB’s scope to include non-EU country exposures.

However, the EBA also said that efforts to factor environmental risks into the EU’s bank capital framework would have to mature further before it would be able to give “definitive advice on if and how macroprudential tools could address the systemic aspects of such risks.”


The European Insurance and Occupational Pensions Authority (EIOPA) launched an inaugural climate stress test of EU pension funds on April 4.

The test uses a scenario cooked up by the European Central Bank and European Systemic Risk Board that simulates a disorderly low-carbon transition. The test will gauge the effects of this scenario on pension funds’ investments as well as on their sponsoring undertakings.

EIOPA says the results of the test are expected to be published in December this year.

On April 25, EIOPA launched a consultation on plans to improve reporting by EU pension funds, including a provision that would allow for the better assessment of their environmental, social, and governance risks. The consultation closes on July 18.


The Joint Committee of the European Supervisory Authorities (ESAs) published its spring report on risks and vulnerabilities in the EU financial system on April 13, which highlighted the rise of environmental risks.

Specifically, the report said that financial institutions have to further integrate ESG with their business strategies and governance structures, and incorporate ESG risks into their “risk appetite and internal capital allocation process.”

The ESAs also said that “data gaps” continue to plague efforts to incorporate ESG into financial institutions’ risk management, investment processes, and investment advice. 


The European Commission adopted rules on what sustainability information investment firms have to publicly disclose on April 6.

These rules describe the content, methodology and presentation of information that financial market participants have to provide under the EU’s Sustainable Finance Disclosures Regulation (SFDR). This regulation is designed to prevent the ‘greenwashing’ of investment products and increase transparency around the climate-friendly claims firms make about their funds. 

The disclosure rules will now be scrutinized by the European Council and Parliament, and are scheduled to apply from January 1, 2023.


The European Financial Reporting Advisory Group (EFRAG), a private association responsible for providing technical advice to the European Commission, published draft sustainability reporting standards that cover environmental, social, and governance issues for public consultation on April 29.

The standards are integral to the EU’s Corporate Sustainability Reporting Directive (CSRD), which will extend detailed ESG and climate-related disclosure requirements to all large EU companies and companies listed on EU-regulated markets.

Stakeholders are invited to provide feedback on the draft standards up until August 8.


The Bank of England (BoE) said it plans to publish the results of its inaugural climate stress test of major banks and insurers on May 24.

On April 7, the UK finance minister told the BoE’s Financial Policy Committee to “have regard to the Government’s energy security strategy” and support “investment in transitional hydrocarbons like gas” in alignment with the UK’s net-zero transition pathway. The BoE has committed to tilting its corporate bond portfolio toward ‘green’ issuers and away from carbon-intensive firms.


UK Government law mandating TCFD-aligned reporting by 1,300 of the country’s largest companies and financial institutions came into effect on April 6.

Covered entities have to disclose information on their climate-related risks and opportunities plus any relevant metrics and targets. They must also produce qualitative climate scenario analysis, which the government says is “a powerful tool” for helping companies assess climate impacts.

Publicly listed companies, as well as private firms with over 500 employees and £500 million in turnover, are covered by the mandate.

On April 25, the UK Government launched a Transition Plan Taskforce (TPT) to establish a “gold standard” for companies on developing and implementing decarbonization strategies. 

The TPT is charged with producing recommendations for a ‘Transition Plan Disclosure Framework’ that publicly traded companies and financial institutions will have to follow. The Framework will facilitate the production of “science-based, standardised and meaningful transition plans” that include short, medium, and long-term targets, action items for climate mitigation and adaptation, and more.

The TPT will also produce sector-specific ‘Transition Plan Templates’ with accompanying guidance on metrics and targets. The Taskforce has a two-year mandate and is scheduled to publish its first report with recommendations by the end of 2022. 


Sveriges Riksbank, the central bank of Sweden, released an assessment of climate transition risks in banks’ loan portfolios on April 8. The study used the Paris Agreement Capital Transition Assessment (PACTA) tool developed by 2 Degrees Investing Initiative.

This analysis found that more than half of Swedish bank lending toward activities “that are directly harmful to the environment” are to entities that are not on track to meet transition targets five years from now.

On April 12, the Riksbank published the carbon footprint of the government bonds in its foreign exchange reserve portfolio.

The bank used an intensity measure developed by the Network for Greening the Financial System (NGFS) that shows how much greenhouse gases the bonds finance in relation to the goods and services produced by their issuing jurisdictions. 

As of March 31, the weighted average carbon intensity (WACI) of the bank’s government bond portfolio amounted to 298,000 tonnes of carbon dioxide equivalent per billion dollars of GDP. This is 2% lower than the total for 2017, when the WACI was 305,000 tonnes.

On April 13, Sveriges Riksbank published research showing a low-carbon transition could increase inflationary pressures by restricting the supply of those carbon-intensive technologies that have historically powered the global economy.


The Central Bank of Ireland (CBI) sent out a call for members to join a new Climate Risk and Sustainable Finance Forum on April 25. 

The forum is intended as a consultative space for “cross-sectoral discussions among representative bodies, financial sector participants, climate change experts and the Central Bank.” It will convene twice a year and be chaired by Deputy Governor Sharon Donnery. The first meeting is scheduled for June 29.

Representatives of financial institutions and industry trade bodies are invited to apply to join by May 20.

Finance ministers from the Association of Southeast Asian Nations (ASEAN) applauded the efforts of the region’s central banks in promoting sustainable finance at a meeting of April 8.

In particular, the ministers welcomed the development of an ‘ASEAN Learning Roadmap’ that will provide regional central banks and regulators “insights into the tools and approaches to assess and monitor environmental risk; design appropriate mitigation measures; and support the scaling up of sustainable finance.”


Japan’s Financial Services Authority (FSA) wants to help domestic financial institutions better understand how to use climate scenarios for climate-related risk management.

In a report published in Japanese on April 12, the regulator provided information on popular climate scenarios used globally — including those produced by the Network for Greening the Financial System.


The Hong Kong Monetary Authority (HKMA) released a ‘Green and Sustainable Finance Data Source Repository’ to help financial market participants access data on climate-related risks, as well as climate scenarios and climate-related targets, actions, and assessments.


Malaysia’s Joint Committee on Climate Change (JC3), a panel of regulators and domestic financial institutions, produced a report on the state of play of sustainable finance in the country.

This included the results of a survey of financial market participants, which revealed that 46% incorporate climate risk in their risk appetite statements and 42% have made commitments to net-zero emissions. Furthermore, 30% have plans in motion to cut off coal financing.

Of the challenges that could restrict the growth of sustainable finance in Malaysia, 96% of survey respondents cited poor data quality or availability, and 71% inadequate regulatory policy.

The survey covered 35 financial institutions, including banks, asset managers, and insurers. 

The Financial Stability Board (FSB) published recommendations to improve supervisors’ and regulators’ efforts to tackle climate-related risks and enhance climate-related data on April 29.

The five recommendations featured in a report summarizing financial authorities’ current approaches to climate change. The FSB is inviting stakeholders to offer feedback on them up until June 30. 

The recommendations say supervisors and regulators should:

  • Accelerate the discovery of their climate-related information needs and go ahead with “identifying, defining, and collecting climate-related data and key metrics that can inform climate risk assessment and monitoring”;
  • Consider whether third-party verification of climate-related data relied on by authorities and financial institutions should be introduced where appropriate within jurisdictions’ legal and regulatory frameworks;
  • Consider using common definitions for climate-related physical, transition, and liability risks, like those proposed by global standard-setters;
  • Begin asking financial institutions to report qualitative information with “increasingly available quantitative information” and progress to higher reporting standards “as the availability and quality of data and measurement methodologies improve”;
  • Work together across borders to develop common regulatory reporting requirements.

The International Sustainability Standards Board (ISSB) set up a working group on April 27 to bolster comparability between its draft disclosure standards and existing jurisdictional efforts on sustainability and climate reporting.

The group consists of representatives from the Chinese Ministry of Finance, the European Commission, the Japanese Financial Services Authority, the UK Financial Conduct Authority, and the US Securities and Exchange Commission, among others.

The group will work to harmonize disclosure requirements at a jurisdictional and international level and explore ways to optimize reporting efficiency for companies in affected jurisdictions.

The ISSB also said it would establish a Sustainability Standards Advisory Forum in the next quarter “to facilitate regular dialogue with, and high-level advice from, a broad set of jurisdictions.”


The Network for Greening the Financial System, a coalition of climate-focused central banks and supervisors, launched a directory that financial market participants can use to look up useful sources of climate data on April 26.

The directory organizes sources of climate data by six stakeholder categories and six primary use cases. Though it does not offer access to climate data itself, by highlighting sources of climate data by type the directory should help stakeholders identify gaps between their climate data needs and what’s available.

The NGFS is consulting on the format, functionality, and content of the directory until May 6.

On April 27, the NGFS published a report on the transparency of green and transition finance with recommendations for policymakers on how to shed more light on their standards, objectives, and performance.

The report favors efforts to improve climate-related taxonomies and frameworks used to categorize green and transition finance and initiatives to ensure these are tied to “clear objectives and science-based net zero targets.” It also calls for a “common understanding” of indicators and targets used to assess the performance of green finance and for a ratcheting up of efforts on disclosure and reporting.