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On June 2, 2022, the Commodities Futures Trading Commission
(CFTC) issued a Request for Information (“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.” According to the RFI, the CFTC is
contemplating “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.”
Specifically, the RFI issued by the CFTC is quite wide-ranging,
and engages with numerous aspects of the CFTC’s authority,
focusing on both systemic and narrow issues. For example, the CFTC
has, among other things, issued a broad request for comment on 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 is hard to
imagine a broader request by the CFTC–it is effectively asking for
input on how “climate-related financial risk” may impact
any portion of its regulatory purview. Conversely, the CFTC has
also posed very specific questions, including as to how the CFTC
“could enhance the integrity of voluntary carbon markets and
foster transparency, fairness, and liquidity in those
markets,” and how it could “adapt its oversight of the
derivatives markets, including any new or amended derivative
products created to hedge-climate-related financial risk.” In
short, based upon the RFI, the CFTC could conceivably adopt a
narrow or broad view of how it should adjust its regulations to
account for climate-related financial risk. Notably, however, the
CFTC also asked if there were “ways in which updated
disclosure requirements could aid market participants in better
assessing climate-related risks,” which suggests that the CFTC
may echo the SEC’s recent proposed rule for mandatory climate
disclosures.
Most significantly, the fact that yet another financial
regulatory agency is focused on “climate-related financial
risk” suggests that the Biden Administration is willing to
expend significant resources and energy in engaging in this type of
regulation to advance its climate agenda. When considered in tandem
with the SEC’s recent proposed rules for mandatory climate
disclosures and to combat greenwashing, it is apparent that there
is a significant regulatory focus on climate issues and the
financial markets. This move by the CFTC also suggests that the
Biden Administration will fully support the SEC’s proposed
rules against the inevitable legal challenge. (And, based upon the
concurrences of the Republican CFTC commissioners to this RFI, it
is likely that any climate-related regulation proposed by the CFTC
will also be subject to legal challenge, likely on the grounds that
such a regulation exceeded the CFTC’s authority.) Most
importantly, this move 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 focus on climate and
the financial markets will remain a top priority for the
foreseeable future.
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