I 117TH CONGRESS 1ST SESSION H. R. 3571 To require the Board of Governors of the Federal Reserve System, in con- sultation with the heads of other relevant Federal agencies, to develop and conduct financial risk analyses relating to climate change, and for other purposes. IN THE HOUSE OF REPRESENTATIVES MAY 28, 2021 Mr. CASTEN (for himself, Mr. PETERS, Mr. LEVIN of California, Mr. QUIGLEY, and Mr. GRIJALVA) introduced the following bill; which was re- ferred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently de- termined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To require the Board of Governors of the Federal Reserve System, in consultation with the heads of other relevant Federal agencies, to develop and conduct financial risk analyses relating to climate change, and for other pur- poses. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Climate Change Finan- 4 cial Risk Act of 2021’’. 5 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 3571 IH SEC. 2. SENSE OF CONGRESS. 1 It is the sense of Congress that— 2 (1) if current trends continue, average global 3 temperatures are likely to reach 1.5 degrees Celsius 4 above pre-industrial levels between 2030 and 2050; 5 (2) global temperature rise has already resulted 6 in an increased number of heavy rainstorms, coastal 7 flooding events, heat waves, wildfires, and other ex- 8 treme events; 9 (3) since 1980— 10 (A) the number of extreme weather events 11 per year that cost the people of the United 12 States more than $1,000,000,000 per event, ac- 13 counting for inflation, has increased signifi- 14 cantly; and 15 (B) the total cost of extreme weather 16 events in the United States has exceeded 17 $1,875,000,000,000; 18 (4) as physical impacts from climate change are 19 manifested across multiple sectors of the economy of 20 the United States— 21 (A) climate-related economic risks will con- 22 tinue to increase; 23 (B) climate-related extreme weather events 24 will disrupt energy and transportation systems 25 in the United States, which will result in more 26 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 3571 IH frequent and longer-lasting power outages, fuel 1 shortages, and service disruptions in critical 2 sectors across the economy of the United 3 States; 4 (C) projected increases in extreme heat 5 conditions will lead to decreases in labor pro- 6 ductivity in agriculture, construction, and other 7 critical economic sectors; 8 (D) food and livestock production will be 9 impacted in regions that experience increases in 10 heat and drought and small rural communities 11 will struggle to find the resources needed to 12 adapt to those changes; and 13 (E) sea level rise and more frequent and 14 intense extreme weather events will— 15 (i) increasingly disrupt and damage 16 private property and critical infrastructure; 17 and 18 (ii) drastically increase insured and 19 uninsured losses; 20 (5) advances in energy efficiency and renewable 21 energy technologies, as well as climate policies and 22 shifting societal preferences, will— 23 (A) reduce global demand for fossil fuels; 24 and 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 3571 IH (B) expose transition risks for fossil fuel 1 companies and investors, and for companies 2 and investors in other energy-intensive indus- 3 tries, which could include trillions of dollars of 4 stranded assets around the world; 5 (6) climate change poses uniquely far-reaching 6 risks to the financial services industry, including 7 with respect to credit, counterparty, and market 8 risks, due to the number of sectors and locations im- 9 pacted and the potentially irreversible scale of dam- 10 age; 11 (7) financial institutions must take a consistent 12 approach to assessing climate-related financial risks 13 and incorporating those risks into existing risk man- 14 agement practices, which should be informed by sce- 15 nario analysis; 16 (8) the Board of Governors conducts annual as- 17 sessments of the capital adequacy and capital plan- 18 ning practices of the largest and most complex bank- 19 ing organizations (referred to in this section as 20 ‘‘stress tests’’) in order to promote a safe, sound, 21 and efficient banking and financial system; 22 (9) as of the date of enactment of this Act, the 23 stress tests conducted by the Board of Governors are 24 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 3571 IH not designed to reflect the physical risks or transi- 1 tion risks posed by climate change; 2 (10) the Board of Governors— 3 (A) has the authority to take into account 4 the potentially systemic impact of climate-re- 5 lated risks on the financial system; and 6 (B) should develop new analytical tools 7 with longer time horizons to accurately assess 8 and manage the risks described in subpara- 9 graph (A); and 10 (11) the Climate-Related Market Risk Sub- 11 committee of the Commodity Futures Trading Com- 12 mission has identified the importance of researching 13 ‘‘climate-related ‘sub-systemic’ shocks to financial 14 markets and institutions in particular sectors and 15 regions of the United States’’. 16 SEC. 3. DEFINITIONS. 17 In this Act: 18 (1) BANK HOLDING COMPANY.—The term 19 ‘‘bank holding company’’ has the meaning given the 20 term in section 102(a) of the Financial Stability Act 21 of 2010 (12 U.S.C. 5311(a)). 22 (2) BOARD OF GOVERNORS.—The term ‘‘Board 23 of Governors’’ means the Board of Governors of the 24 Federal Reserve System. 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 3571 IH (3) CLIMATE SCIENCE LEADS.—The term ‘‘cli- 1 mate science leads’’ means— 2 (A) the Administrator of the National Oce- 3 anic and Atmospheric Administration; 4 (B) the Administrator of the Environ- 5 mental Protection Agency; 6 (C) the Secretary of Energy; 7 (D) the Administrator of the National Aer- 8 onautics and Space Administration; 9 (E) the Director of the United States Geo- 10 logical Survey; 11 (F) the Secretary of the Interior; and 12 (G) the head of any other Federal agency 13 that the Board of Governors determines to be 14 appropriate. 15 (4) COVERED ENTITY.—The term ‘‘covered en- 16 tity’’ means— 17 (A) a nonbank financial company or bank 18 holding company that has not less than 19 $250,000,000,000 in total consolidated assets; 20 and 21 (B) a nonbank financial company or bank 22 holding company— 23 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 3571 IH (i) that has not less than 1 $100,000,000,000 in total consolidated as- 2 sets; and 3 (ii) with respect to which the Board of 4 Governors determines the application of 5 subparagraph (C) of section 165(i)(1) of 6 the Financial Stability Act of 2010 (12 7 U.S.C. 5365(i)(1)), as added by section 6 8 of this Act, is appropriate— 9 (I) to— 10 (aa) prevent or mitigate 11 risks to the financial stability of 12 the United States; or 13 (bb) promote the safety and 14 soundness of the company; and 15 (II) after taking into consider- 16 ation— 17 (aa) the capital structure, 18 riskiness, complexity, financial 19 activities, and size of the com- 20 pany, including the financial ac- 21 tivities of any subsidiary of the 22 company; and 23 (bb) any other risk-related 24 factor that the Board of Gov- 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 3571 IH ernors determines to be appro- 1 priate. 2 (5) NONBANK FINANCIAL COMPANY.—The term 3 ‘‘nonbank financial company’’ has the meaning given 4 the term in section 102(a)(4)(C) of the Financial 5 Stability Act of 2010 (12 U.S.C. 5311(a)(4)(C)). 6 (6) PHYSICAL RISKS.—The term ‘‘physical 7 risks’’ means financial risks to assets, locations, op- 8 erations, or value chains that result from exposure 9 to physical climate-related effects, including— 10 (A) increased average global temperatures; 11 (B) increased severity and frequency of ex- 12 treme weather events; 13 (C) increased flooding; 14 (D) sea level rise; 15 (E) ocean acidification; 16 (F) increased severity and frequency of 17 heat waves; 18 (G) increased frequency of wildfires; 19 (H) decreased arability of farmland; and 20 (I) decreased availability of fresh water. 21 (7) SURVEYED ENTITY.—The term ‘‘surveyed 22 entity’’ means a nonbank financial company super- 23 vised by the Board of Governors, or a bank holding 24 company, that— 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 3571 IH (A) has total consolidated assets of not less 1 than $10,000,000,000; and 2 (B) is not a covered entity. 3 (8) TECHNICAL DEVELOPMENT GROUP.—The 4 term ‘‘Technical Development Group’’ means the 5 Climate Risk Scenario Technical Development Group 6 established under section 4. 7 (9) TRANSITION RISKS.—The term ‘‘transition 8 risks’’ means financial risks that are attributable to 9 climate change mitigation and adaptation, including 10 efforts to reduce greenhouse gas emissions and 11 strengthen resilience to the impacts of climate 12 change, including— 13 (A) costs relating to— 14 (i) international treaties and agree- 15 ments; 16 (ii) Federal, State, and local policies; 17 (iii) new technologies; 18 (iv) changing markets; 19 (v) reputational impacts relevant to 20 changing consumer behavior; and 21 (vi) litigation; and 22 (B) a loss in the value, or the stranding, 23 of assets due to any of the costs described in 24 clauses (i) through (vi) of subparagraph (A). 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 3571 IH (10) VALUE CHAIN.—The term ‘‘value chain’’— 1 (A) means the total lifecycle of a product 2 or service, both before and after production of 3 the product or service, as applicable; and 4 (B) may include the sourcing of materials, 5 production, and disposal with respect to the 6 product or service described in subparagraph 7 (A). 8 SEC. 4. CLIMATE RISK SCENARIO TECHNICAL DEVELOP- 9 MENT GROUP. 10 (a) ESTABLISHMENT.—The Board of Governors shall 11 establish a technical advisory group to be known as the 12 Climate Risk Scenario Technical Development Group. 13 (b) MEMBERSHIP.— 14 (1) COMPOSITION.—The Technical Develop- 15 ment Group shall be composed of 10 members— 16 (A) 5 of whom shall be climate scientists; 17 and 18 (B) 5 of whom shall be economists, with 19 expertise in either the United States financial 20 system or the risks posed by climate change. 21 (2) SELECTION.—The Board of Governors shall 22 select the members of the Technical Development 23 Group after consultation with the climate science 24 leads. 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 3571 IH (c) DUTIES.—The Technical Development Group 1 shall— 2 (1) provide recommendations to the Board of 3 Governors regarding the development of, and up- 4 dates to, the climate change risk scenarios under 5 section 5; 6 (2) after the establishment of the climate 7 change risk scenarios under section 5, determine the 8 financial and economic risks resulting from those 9 scenarios; 10 (3) make any final work product and any data 11 sets or other inputs used in the development of the 12 final work product, publicly available; and 13 (4) provide technical assistance to covered enti- 14 ties in assessing physical risks or transition risks. 15 (d) INAPPLICABILITY OF FEDERAL ADVISORY COM- 16 MITTEE ACT.—The Federal Advisory Committee Act (5 17 U.S.C. App.) shall not apply with respect to the Technical 18 Development Group. 19 SEC. 5. DEVELOPMENT AND UPDATING OF CLIMATE 20 CHANGE RISK SCENARIOS. 21 (a) IN GENERAL.— 22 (1) INITIAL DEVELOPMENT.—Not later than 1 23 year after the date of enactment of this Act, the 24 Board of Governors, in coordination with the climate 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 3571 IH science leads, and taking into consideration the rec- 1 ommendations of the Technical Development Group, 2 shall develop 3 separate climate change risk sce- 3 narios as follows: 4 (A) One scenario that assumes an average 5 increase in global temperatures of 1.5 degrees 6 Celsius above pre-industrial levels. 7 (B) One scenario that assumes an average 8 increase in global temperatures of 2 degrees 9 Celsius above pre-industrial levels. 10 (C) One scenario that— 11 (i) assumes the likely and very likely 12 average increase in global temperatures 13 that can be expected, taking into consider- 14 ation the extent to which national policies 15 and actions relating to climate change have 16 been implemented, as of the date on which 17 the scenario is developed, or on which the 18 scenario is updated under paragraph (2), 19 as applicable; and 20 (ii) does not take into consideration 21 commitments for policies and actions relat- 22 ing to climate change that, as of the appli- 23 cable date described in clause (i), have not 24 been implemented. 25 VerDate Sep 11 2014 06:34 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H3571.IH H3571 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 3571 IH (2) UPDATES.—After the initial development of 1 the climate change risk scenarios under paragraph 2 (1), the Board of Governors, in coordination with 3 the climate science leads, and taking into consider- 4 ation the recommendations of the Technical Devel- 5 opment Group, shall update those scenarios once 6 every 3 years. 7 (3) INTERNATIONAL COORDINATION.—In devel- 8 oping and updating the 3 scenarios required under 9 this subsection, the Board of Governors shall take 10 into considerati [Text truncated for display. Full text available on Congress.gov.]