U.S. Regulators Continue to Focus on Climate and ESG Related Concerns
As investors are actively demanding that fund managers invest in a socially responsible manner, regulators are increasing their oversight on climate protection, as well as environmental, social and governance (“ESG”) priorities.
On March 17, 2021, the U.S. Commodity Futures Trading Commission (the “CFTC”) Acting Chairman Rostin Behnam announced that he has established the Climate Risk Unit (the “CRU”) to support the agency’s mission. The CRU will focus on the role of derivatives in understanding, pricing, and addressing climate-related risk and transitioning to a low-carbon economy and represents the agency’s next step in response to what has become a global call to action on tackling climate change.
“The COVID-19 pandemic, as well as increasingly severe weather and environmental impacts, have firmly established the role of financial regulators in providing decisive leadership in times of market stress,” said Acting Chairman Behnam. “Climate change poses a major threat to U.S. financial stability, and I believe we must move urgently and assertively in utilizing our wide-ranging and flexible authorities to address emerging risks. The CFTC’s unique mission focused on risk mitigation and price discovery puts us on the front lines of this effort. Leveraging the CFTC’s personnel and expertise demonstrates our commitment to taking thoughtful and deliberate next steps toward building a climate-resilient financial system.”
The formation of the CRU follows years of climate leadership at the CFTC by Behnam and a recent shift in regulatory bodies, recognizing the need to reduce carbon emissions. The announcement by the CFTC recognizes that, “the derivatives markets regulated by the CFTC will play a vital role in supporting and developing new products and solutions that address climate and sustainability challenges.”
The CRU formation also follows recent announcements from the Securities and Exchange Commision (“SEC”) focusing on climate issues. For example, the SEC’s Division of Examinations announced on March 3, 2021, that it will focus on climate-related risks and ensure the accuracy of ESG-related claims made by investment advisers. Moreover, on March 4, 2021, the SEC announced the creation of its own climate and ESG Task Force. See here for a Sadis Alert dated March 4.
If you have any questions about this Alert, or your ESG disclosure requirements, do not hesitate to reach out to Daniel Viola (Partner – Head of the Regulatory Group) at 212.573.8038 or via email at dviola@sadis.com.
