Climate Change Financial Risk Act of 2019

II 116TH CONGRESS 1ST SESSION S. 2903 To require the Board of Governors of the Federal Reserve System, in con- sultation with the heads of other relevant Federal agencies, to develop financial risk analyses relating to climate change, and for other purposes. IN THE SENATE OF THE UNITED STATES NOVEMBER 20, 2019 Mr. SCHATZ (for himself, Ms. WARREN, Mr. VAN HOLLEN, Mr. WHITE- HOUSE, Mr. BENNET, Mr. MERKLEY, Mr. BOOKER, Ms. KLOBUCHAR, Ms. HARRIS, and Mrs. MURRAY) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 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 financial risk analyses relat- ing to climate change, and for other purposes. 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 2019’’. 5 SEC. 2. SENSE OF CONGRESS. 6 It is the sense of Congress that— 7 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 2903 IS (1) if current trends continue, average global 1 temperatures are likely to reach 1.5 degrees Celsius 2 above pre-industrial levels between 2030 and 2050; 3 (2) global temperature rise has already resulted 4 in an increased number of heavy rainstorms, coastal 5 flooding events, heat waves, wildfires, and other ex- 6 treme events; 7 (3) since 1980— 8 (A) the number of extreme weather events 9 per year that cost the people of the United 10 States more than $1,000,000,000 per event, ac- 11 counting for inflation, has increased signifi- 12 cantly; and 13 (B) the total cost of extreme weather 14 events in the United States has exceeded 15 $1,100,000,000,000; 16 (4) as physical impacts from climate change are 17 manifested across multiple sectors of the economy of 18 the United States— 19 (A) climate-related economic risks will con- 20 tinue to increase; 21 (B) climate-related extreme weather events 22 will disrupt energy and transportation systems 23 in the United States, which will result in more 24 frequent and longer-lasting power outages, fuel 25 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 2903 IS shortages, and service disruptions in critical 1 sectors across the economy of the United 2 States; 3 (C) projected increases in extreme heat 4 conditions will lead to decreases in labor pro- 5 ductivity in agriculture, construction, and other 6 critical economic sectors; 7 (D) food and livestock production will be 8 impacted in regions that experience increases in 9 heat and drought and small rural communities 10 will struggle to find the resources needed to 11 adapt to those changes; and 12 (E) sea level rise and more frequent and 13 intense extreme weather events will— 14 (i) increasingly disrupt and damage 15 private property and critical infrastructure; 16 and 17 (ii) drastically increase insured and 18 uninsured losses; 19 (5) advances in energy efficiency and renewable 20 energy technologies, as well as climate policies and 21 shifting societal preferences, will— 22 (A) reduce global demand for fossil fuels; 23 and 24 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 2903 IS (B) expose transition risks for fossil fuel 1 companies and investors, which could include 2 trillions of dollars of stranded assets around the 3 world; 4 (6) climate change poses uniquely far-reaching 5 risks to the financial services industry, including 6 with respect to underwriting, credit, and market 7 risks, due to the number of sectors and locations im- 8 pacted and the potentially irreversible scale of dam- 9 age; 10 (7) financial institutions must take a consistent 11 approach to assessing climate-related financial risks 12 and incorporating those risks into existing risk man- 13 agement practices, which should be informed by sce- 14 nario analysis; 15 (8) the Board of Governors conducts annual as- 16 sessments of the capital adequacy and capital plan- 17 ning practices of the largest and most complex bank- 18 ing organizations (referred to in this section as 19 ‘‘stress tests’’) in order to promote a safe, sound, 20 and efficient banking and financial system; 21 (9) as of the date of enactment of this Act, the 22 stress tests conducted by the Board of Governors are 23 not designed to reflect the physical risks or transi- 24 tion risks posed by climate change; and 25 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 2903 IS (10) the Board of Governors— 1 (A) has the authority to take into account 2 the potentially systemic impact of climate-re- 3 lated risks on the financial system; and 4 (B) should develop new analytical tools 5 with longer time horizons to accurately assess 6 and manage the risks described in subpara- 7 graph (A). 8 SEC. 3. DEFINITIONS. 9 In this Act: 10 (1) BANK HOLDING COMPANY.—The term 11 ‘‘bank holding company’’ has the meaning given the 12 term in section 102(a) of the Financial Stability Act 13 of 2010 (12 U.S.C. 5311(a)). 14 (2) BOARD OF GOVERNORS.—The term ‘‘Board 15 of Governors’’ means the Board of Governors of the 16 Federal Reserve System. 17 (3) CLIMATE SCIENCE LEADS.—The term ‘‘cli- 18 mate science leads’’ means— 19 (A) the Administrator of the National Oce- 20 anic and Atmospheric Administration; 21 (B) the Administrator of the Environ- 22 mental Protection Agency; 23 (C) the Secretary of Energy; 24 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 2903 IS (D) the Administrator of the National Aer- 1 onautics and Space Administration; 2 (E) the Director of the United States Geo- 3 logical Survey; 4 (F) the Secretary of the Interior; and 5 (G) the head of any other Federal agency 6 that the Board of Governors determines to be 7 appropriate. 8 (4) COVERED ENTITY.—The term ‘‘covered en- 9 tity’’ means— 10 (A) a nonbank financial company or bank 11 holding company that has not less than 12 $250,000,000,000 in total consolidated assets; 13 and 14 (B) a nonbank financial company or bank 15 holding company— 16 (i) that has not less than 17 $100,000,000,000 in total consolidated as- 18 sets; and 19 (ii) with respect to which the Board of 20 Governors determines the application of 21 subparagraph (C) of section 165(i)(1) of 22 the Financial Stability Act of 2010 (12 23 U.S.C. 5365(i)(1)), as added by section 6 24 of this Act, is appropriate— 25 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 2903 IS (I) to— 1 (aa) prevent or mitigate 2 risks to the financial stability of 3 the United States; or 4 (bb) promote the safety and 5 soundness of the company; and 6 (II) after taking into consider- 7 ation— 8 (aa) the capital structure, 9 riskiness, complexity, financial 10 activities, and size of the com- 11 pany, including the financial ac- 12 tivities of any subsidiary of the 13 company; and 14 (bb) any other risk-related 15 factor that the Board of Gov- 16 ernors determines to be appro- 17 priate. 18 (5) NONBANK FINANCIAL COMPANY.—The term 19 ‘‘nonbank financial company’’ has the meaning given 20 the term in section 102(a)(4)(C) of the Financial 21 Stability Act of 2010 (12 U.S.C. 5311(a)(4)(C)). 22 (6) PHYSICAL RISKS.—The term ‘‘physical 23 risks’’ means financial risks to assets, locations, op- 24 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 2903 IS erations, or value chains that result from exposure 1 to physical climate-related effects, including— 2 (A) increased average global temperatures; 3 (B) increased severity and frequency of ex- 4 treme weather events; 5 (C) increased flooding; 6 (D) sea level rise; 7 (E) ocean acidification; 8 (F) increased severity and frequency of 9 heat waves; 10 (G) increased frequency of wildfires; 11 (H) decreased arability of farmland; and 12 (I) decreased availability of fresh water. 13 (7) TECHNICAL DEVELOPMENT GROUP.—The 14 term ‘‘Technical Development Group’’ means the 15 Climate Risk Scenario Technical Development Group 16 established under section 4. 17 (8) TRANSITION RISKS.—The term ‘‘transition 18 risks’’ means financial risks that are attributable to 19 climate change mitigation and adaptation, including 20 efforts to reduce greenhouse gas emissions and 21 strengthen resilience to the impacts of climate 22 change, including— 23 (A) costs relating to— 24 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 2903 IS (i) international treaties and agree- 1 ments; 2 (ii) Federal, State, and local policies; 3 (iii) new technologies; 4 (iv) changing markets; 5 (v) reputational impacts relevant to 6 changing consumer behavior; and 7 (vi) litigation; and 8 (B) a loss in the value, or the stranding, 9 of assets due to any of the costs described in 10 clauses (i) through (vi) of subparagraph (A). 11 (9) VALUE CHAIN.—The term ‘‘value chain’’— 12 (A) means the total lifecycle of a product 13 or service, both before and after production of 14 the product or service, as applicable; and 15 (B) may include the sourcing of materials, 16 production, and disposal with respect to the 17 product or service described in subparagraph 18 (A). 19 SEC. 4. CLIMATE RISK SCENARIO TECHNICAL DEVELOP- 20 MENT GROUP. 21 (a) ESTABLISHMENT.—The Board of Governors shall 22 establish a technical advisory group to be known as the 23 Climate Risk Scenario Technical Development Group. 24 (b) MEMBERSHIP.— 25 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 2903 IS (1) COMPOSITION.—The Technical Develop- 1 ment Group shall be composed of 10 members— 2 (A) 5 of whom shall be climate scientists; 3 and 4 (B) 5 of whom shall be economists, with 5 expertise in either the United States financial 6 system or the risks posed by climate change. 7 (2) SELECTION.—The Board of Governors shall 8 select the members of the Technical Development 9 Group after consultation with the climate science 10 leads. 11 (c) DUTIES.—The Technical Development Group 12 shall— 13 (1) provide recommendations to the Board of 14 Governors regarding the development of, and up- 15 dates to, the climate change risk scenarios under 16 section 5; 17 (2) after the establishment of the climate 18 change risk scenarios under section 5, determine the 19 financial and economic risks resulting from those 20 scenarios; 21 (3) make any final work product and any data 22 sets or other inputs used in the development of the 23 final work product, publicly available; and 24 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 2903 IS (4) provide technical assistance to covered enti- 1 ties in assessing physical risks or transition risks. 2 (d) INAPPLICABILITY OF FEDERAL ADVISORY COM- 3 MITTEE ACT.—The Federal Advisory Committee Act (5 4 U.S.C. App.) shall not apply with respect to the Technical 5 Development Group. 6 SEC. 5. DEVELOPMENT AND UPDATING OF CLIMATE 7 CHANGE RISK SCENARIOS. 8 (a) IN GENERAL.— 9 (1) INITIAL DEVELOPMENT.—Not later than 1 10 year after the date of enactment of this Act, the 11 Board of Governors, in coordination with the climate 12 science leads, and taking into consideration the rec- 13 ommendations of the Technical Development Group, 14 shall develop 3 separate climate change risk sce- 15 narios as follows: 16 (A) One scenario that assumes an average 17 increase in global temperatures of 1.5 degrees 18 Celsius above pre-industrial levels. 19 (B) One scenario that assumes an average 20 increase in global temperatures of 2 degrees 21 Celsius above pre-industrial levels. 22 (C) One scenario that— 23 (i) assumes the likely and very likely 24 average increase in global temperatures 25 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 2903 IS that can be expected, taking into consider- 1 ation the extent to which national policies 2 and actions relating to climate change have 3 been implemented, as of the date on which 4 the scenario is developed, or on which the 5 scenario is updated under paragraph (2), 6 as applicable; and 7 (ii) does not take into consideration 8 commitments for policies and actions relat- 9 ing to climate change that, as of the appli- 10 cable date described in clause (i), have not 11 been implemented. 12 (2) UPDATES.—After the initial development of 13 the climate change risk scenarios under paragraph 14 (1), the Board of Governors, in coordination with 15 the climate science leads, and taking into consider- 16 ation the recommendations of the Technical Devel- 17 opment Group, shall update those scenarios once 18 every 3 years. 19 (3) INTERNATIONAL COORDINATION.—In devel- 20 oping and updating the 3 scenarios required under 21 this subsection, the Board of Governors shall take 22 into consideration analytic tools and best practices 23 developed by international banking supervisors relat- 24 ing to climate risks and scenario analysis in an ef- 25 VerDate Sep 11 2014 01:46 Nov 26, 2019 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2903.IS S2903 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 2903 IS fort to develop consistent and comparable data-driv- 1 en scenarios. 2 (4) RECOMMENDATIONS.—If the Technical De- 3 velopment Group determines that the average in- 4 crease in global temperatures described in subpara- 5 graph (A) or (B) of paragraph (1) is no longer sci- 6 entifically valid, the Technical Development Group 7 may recommend that the Board of Governors, in co- 8 ordination with the climate science leads, update the 9 average increase in global temperatures described in 10 the applicable subparagraph to reflect the most cur- 11 rent assessment of climate change science. 12 (b) CONSIDERATIONS.—In developing and updating 13 each of the 3 scenarios [Text truncated for display. 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