,,ii #aafth ,,congress #ast ,session ,s4 #bijc ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,november #bj1 #bjai,mr4 ,schatz 7for himself1 ,ms4 ,warren1 ,mr4 ,van ,hollen1 ,mr4 ,whitehouse1 ,mr4 ,bennet1 ,mr4 ,merkley1 ,mr4 ,booker1 ,ms4 ,klobuchar1 ,ms4 ,harris1 and ,mrs4 ,murray7 introduced the following bill2 which was read twice and referred to the ,committee on ,banking1 ,housing1 and ,urban ,affairs ,a ,,bill ,to require the ,board of ,governors of the ,federal ,reserve ,system1 in consultation with the heads of other relevant ,federal agencies1 to develop financial risk analyses relating to climate change1 and for other purposes4 #a4 ,short title ,this ,act may be cited as the ,climate ,change ,financial ,risk ,act of #bjai4 #b4 ,sense of congress ,it is the sense of ,congress that-- 7#a7 if current trends continue1 average global temperatures are likely to reach #a4e degrees ,celsius above pre-industrial levels between #bjcj and #bjej2 7#b7 global temperature rise has already resulted in an increased number of heavy rainstorms1 coastal flooding events1 heat waves1 wildfires1 and other extreme events2 7#c7 since #aihj-- 7,a7 the number of extreme weather events per year that cost the people of the ,united ,states more than #a1jjj1jjj1jjj per event1 accounting for inflation1 has increased significantly2 and 7,b7 the total cost of extreme weather events in the ,united ,states has exceeded #a1ajj1jjj1jjj1jjj2 7#d7 as physical impacts from climate change are manifested across multiple sectors of the economy of the ,united ,states-- 7,a7 climate-related economic risks will continue to increase2 7,b7 climate-related extreme weather events will disrupt energy and transportation systems in the ,united ,states1 which will result in more frequent and longer-lasting power outages1 fuel shortages1 and service disruptions in critical sectors across the economy of the ,united ,states2 7,c7 projected increases in extreme heat conditions will lead to decreases in labor productivity in agriculture1 construction1 and other critical economic sectors2 7,d7 food and livestock production will be impacted in regions that experience increases in heat and drought and small rural communities will struggle to find the resources needed to adapt to those changes2 and 7,e7 sea level rise and more frequent and intense extreme weather events will-- 7i7 increasingly disrupt and damage private property and critical infrastructure2 and 7ii7 drastically increase insured and uninsured losses2 7#e7 advances in energy efficiency and renewable energy technologies1 as well as climate policies and shifting societal preferences1 will-- 7,a7 reduce global demand for fossil fuels2 and 7,b7 expose transition risks for fossil fuel companies and investors1 which could include trillions of dollars of stranded assets around the world2 7#f7 climate change poses uniquely far-reaching risks to the financial services industry1 including with respect to underwriting1 credit1 and market risks1 due to the number of sectors and locations impacted and the potentially irreversible scale of damage2 7#g7 financial institutions must take a consistent approach to assessing climate-related financial risks and incorporating those risks into existing risk management practices1 which should be informed by scenario analysis2 7#h7 the ,board of ,governors conducts annual assessments of the capital adequacy and capital planning practices of the largest and most complex banking organizations 7referred to in this section as stress tests7 in order to promote a safe1 sound1 and efficient banking and financial system2 7#i7 as of the date of enactment of this ,act1 the stress tests conducted by the ,board of ,governors are not designed to reflect the physical risks or transition risks posed by climate change2 and 7#aj7 the ,board of ,governors-- 7,a7 has the authority to take into account the potentially systemic impact of climate-related risks on the financial system2 and 7,b7 should develop new analytical tools with longer time horizons to accurately assess and manage the risks described in subparagraph 7,a74 #c4 ,definitions ,in this ,act3 7#a7 ,bank holding company ,the term bank holding company has the meaning given the term in section #ajb7;a7 of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecaa7;a774 7#b7 ,board of ,governors ,the term ,board of ,governors means the ,board of ,governors of the ,federal ,reserve ,system4 7#c7 ,climate science leads ,the term climate science leads means-- 7,a7 the ,administrator of the ,national ,oceanic and ,atmospheric ,administration2 7,b7 the ,administrator of the ,environmental ,protection ,agency2 7,c7 the ,secretary of ,energy2 7,d7 the ,administrator of the ,national ,aeronautics and ,space ,administration2 7,e7 the ,director of the ,united ,states ,geological ,survey2 7,f7 the ,secretary of the ,interior2 and 7,g7 the head of any other ,federal agency that the ,board of ,governors determines to be appropriate4 7#d7 ,covered entity ,the term covered entity means-- 7,a7 a nonbank financial company or bank holding company that has not less than #bej1jjj1jjj1jjj in total consolidated assets2 and 7,b7 a nonbank financial company or bank holding company-- 7i7 that has not less than #ajj1jjj1jjj1jjj in total consolidated assets2 and 7ii7 with respect to which the ,board of ,governors determines the application of subparagraph 7,c7 of section #afe7;i77#a7 of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecfe7;i77#a771 as added by section #f of this ,act1 is appropriate-- 7,i7 to-- 7aa7 prevent or mitigate risks to the financial stability of the ,united ,states2 or 7bb7 promote the safety and soundness of the company2 and 7,,ii7 after taking into consideration-- 7aa7 the capital structure1 riskiness1 complexity1 financial activities1 and size of the company1 including the financial activities of any subsidiary of the company2 and 7bb7 any other risk-related factor that the ,board of ,governors determines to be appropriate4 7#e7 ,nonbank financial company ,the term nonbank financial company has the meaning given the term in section #ajb7;a77#d77;,c7 of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecaa7;a77#d77;,c774 7#f7 ,physical risks ,the term physical risks means financial risks to assets1 locations1 operations1 or value chains that result from exposure to physical climate-related effects1 including-- 7,a7 increased average global temperatures2 7,b7 increased severity and frequency of extreme weather events2 7,c7 increased flooding2 7,d7 sea level rise2 7,e7 ocean acidification2 7,f7 increased severity and frequency of heat waves2 7,g7 increased frequency of wildfires2 7,h7 decreased arability of farmland2 and 7,i7 decreased availability of fresh water4 7#g7 ,technical ,development ,group ,the term ,technical ,development ,group means the ,climate ,risk ,scenario ,technical ,development ,group established under section #d4 7#h7 ,transition risks ,the term transition risks means financial risks that are attributable to climate change mitigation and adaptation1 including efforts to reduce greenhouse gas emissions and strengthen resilience to the impacts of climate change1 including-- 7,a7 costs relating to-- 7i7 international treaties and agreements2 7ii7 ,federal1 ,state1 and local policies2 7iii7 new technologies2 7iv7 changing markets2 7v7 reputational impacts relevant to changing consumer behavior2 and 7vi7 litigation2 and 7,b7 a loss in the value1 or the stranding1 of assets due to any of the costs described in clauses 7i7 through 7vi7 of subparagraph 7,a74 7#i7 ,value chain ,the term value chain-- 7,a7 means the total lifecycle of a product or service1 both before and after production of the product or service1 as applicable2 and 7,b7 may include the sourcing of materials1 production1 and disposal with respect to the product or service described in subparagraph 7,a74 #d4 ,climate ,risk ,scenario ,technical ,development ,group 7a7 ,establishment ,the ,board of ,governors shall establish a technical advisory group to be known as the ,climate ,risk ,scenario ,technical ,development ,group4 7b7 ,membership 7#a7 ,composition ,the ,technical ,development ,group shall be composed of #aj members-- 7,a7 #e of whom shall be climate scientists2 and 7,b7 #e of whom shall be economists1 with expertise in either the ,united ,states financial system or the risks posed by climate change4 7#b7 ,selection ,the ,board of ,governors shall select the members of the ,technical ,development ,group after consultation with the climate science leads4 7c7 ,duties ,the ,technical ,development ,group shall-- 7#a7 provide recommendations to the ,board of ,governors regarding the development of1 and updates to1 the climate change risk scenarios under section #e2 7#b7 after the establishment of the climate change risk scenarios under section #e1 determine the financial and economic risks resulting from those scenarios2 7#c7 make any final work product and any data sets or other inputs used in the development of the final work product1 publicly available2 and 7#d7 provide technical assistance to covered entities in assessing physical risks or transition risks4 7d7 ,inapplicability of ,federal ,advisory ,committee ,act ,the ,federal ,advisory ,committee ,act 7#e ,u4,s4,c4 ,app47 shall not apply with respect to the ,technical ,development ,group4 #e4 ,development and updating of climate change risk scenarios 7a7 ,in general 7#a7 ,initial development ,not later than #a year after the date of enactment of this ,act1 the ,board of ,governors1 in coordination with the climate science leads1 and taking into consideration the recommendations of the ,technical ,development ,group1 shall develop #c separate climate change risk scenarios as follows3 7,a7 ,one scenario that assumes an average increase in global temperatures of #a4e degrees ,celsius above pre-industrial levels4 7,b7 ,one scenario that assumes an average increase in global temperatures of #b degrees ,celsius above pre-industrial levels4 7,c7 ,one scenario that-- 7i7 assumes the likely and very likely average increase in global temperatures that can be expected1 taking into consideration the extent to which national policies and actions relating to climate change have been implemented1 as of the date on which the scenario is developed1 or on which the scenario is updated under paragraph 7#b71 as applicable2 and 7ii7 does not take into consideration commitments for policies and actions relating to climate change that1 as of the applicable date described in clause 7i71 have not been implemented4 7#b7 ,updates ,after the initial development of the climate change risk scenarios under paragraph 7#a71 the ,board of ,governors1 in coordination with the climate science leads1 and taking into consideration the recommendations of the ,technical ,development ,group1 shall update those scenarios once every #c years4 7#c7 ,international coordination ,in developing and updating the #c scenarios required under this subsection1 the ,board of ,governors shall take into consideration analytic tools and best practices developed by international banking supervisors relating to climate risks and scenario analysis in an effort to develop consistent and comparable data-driven scenarios4 7#d7 ,recommendations ,if the ,technical ,development ,group determines that the average increase in global temperatures described in subparagraph 7,a7 or 7,b7 of paragraph 7#a7 is no longer scientifically valid1 the ,technical ,development ,group may recommend that the ,board of ,governors1 in coordination with the climate science leads1 update the average increase in global temperatures described in the applicable subparagraph to reflect the most current assessment of climate change science4 7b7 ,considerations ,in developing and updating each of the #c scenarios required under subsection 7a71 the ,board of ,governors1 in coordination with the climate science leads1 shall account for physical risks and transition risks that may disrupt business operations across the global economy1 including through-- 7#a7 disruptions with respect to-- 7,a7 the sourcing of materials2 7,b7 production2 and 7,c7 the disposal of products and services2 7#b7 changes in the availability and prices of raw materials and other inputs2 7#c7 changes in agricultural production and with respect to food security2 7#d7 direct damages to fixed assets2 7#e7 increases in costs associated with insured or uninsured losses2 7#f7 changes in asset values2 7#g7 impacts on-- 7,a7 aggregate demand for products and services2 7,b7 labor productivity2 7,c7 asset liquidity2 and 7,d7 credit availability2 7#h7 mass migration and increases in disease and mortality rates2 7#i7 international conflict1 as such conflict relates to global economic activity and output2 and 7#aj7 changes in any other microeconomic or macroeconomic condition that the ,board of ,governors1 in coordination with the climate science leads1 determines to be relevant4 #f4 ,climate-related enhanced supervision for certain nonbank financial companies and bank holding companies ,section #afe7;i77#a7 of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecfe7;i77#a77 is amended-- 7#a7 in subparagraph 7,b77i71 by inserting except as provided in subparagraph 7,c77ii77,i71 before shall provide2 and 7#b7 by adding at the end the following3 7,c7 ,biennial tests required 7i7 ,definitions ,in this subparagraph-- 7,i7 the term capital distribution has the meaning given the term in section #bbe4h of title #ab1 ,code of ,federal ,regulations1 as in effect on the date of enactment of this subparagraph2 7,,ii7 the term capital policy has the meaning given the term in section #bbe4h7;d77#h7 of title #ab1 ,code of ,federal ,regulations1 as in effect on the date of enactment of this subparagraph2 and 7,,iii7 the terms climate science leads and covered entity have the meanings given those terms in section #c of the ,climate ,change ,financial ,risk ,act of #bjai4 7ii7 ,tests 7,i7 ,in general ,subject to the other requirements of this clause1 the ,board of ,governors1 in coordination with the appropriate primary financial regulatory agencies and the climate science leads1 shall conduct biennial analyses in which each covered entity is subject to evaluation1 under an adverse set of conditions1 of whether that covered entity has the capital1 on a total consolidated basis1 necessary to absorb financial losses that would arise under each climate change risk scenario developed under section #e of the ,climate ,change ,financial ,risk ,act of #bjai4 7,,ii7 ,initial tests ,with respect to each of the first #c analyses conducted under subclause 7,i7-- 7aa7 the covered entity to which such an analysis applies shall not be subject to any adverse consequences as a result of the analysis2 and 7bb7 the ,board of ,governors shall-- 7,,aa7 not later than #fj days after the date on which the ,board of ,governors completes each such analysis1 make a summary of the analysis publicly available2 and 7,,bb7 submit a copy of the results of the analysis to the ,committee on ,banking1 ,housing1 and ,urban ,affairs of the ,senate and the ,committee on ,financial ,services of the ,house of ,representatives4 7,,iii7 ,climate risk capital policy 7aa7 ,in general ,except with respect to the first analysis conducted under subclause 7,i71 each covered entity shall1 before being subject to an analysis under that subclause1 submit to the ,board of ,governors a capital policy with respect to climate risk planning 7referred to in this subclause as a climate risk capital policy71 which shall be based on the results of the most recently conducted analysis of the covered entity under that subclause4 7bb7 ,rejection ,except as provided in subclause 7,,ii77aa71 the ,board of ,governors may object to a climate risk capital policy submitted by a covered entity under item 7aa7 if the ,board of ,governors determines that-- 7,,aa7 the covered entity has not demonstrated a reasonable plan to maintain capital above each minimum regulatory capital ratio on a pro forma basis under the adverse set of conditions described in subclause 7,i72 7,,bb7 the climate risk capital policy is otherwise not reasonable or appropriate2 7,,cc7 the assumptions and analysis underlying the climate risk capital policy1 or the methodologies and practices that support the climate risk capital policy1 are not reasonable or appropriate2 or 7,,dd7 the climate risk capital policy otherwise constitutes an unsafe or unsound practice4 7cc7 ,general distribution limitation ,if the ,board of ,governors1 under item 7bb71 objects to a climate risk capital policy submitted by a covered entity under item 7aa71 the covered entity may not make any capital distribution1 other than a capital distribution arising from the issuance of a regulatory capital instrument eligible for inclusion in the numerator of a minimum regulatory capital ratio4 4 #g4 ,financial ,stability ,oversight ,council 7a7 ,in general ,the ,financial ,stability ,oversight ,council shall establish a subcommittee of the ,council that shall support the ,council in identifying risks to1 and in responding to emerging threats to1 the stability of the ,united ,states financial system as a result of climate change4 7b7 ,responsibilities 7#a7 ,subcommittee ,the subcommittee established under subsection 7a7 shall1 not later than #a year after the completion of the first analysis required under subparagraph 7,c7 of section #afe7;i77#a7 of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecfe7;i77#a771 as added by section #f of this ,act1 and in consultation with the ,office of ,financial ,research1 submit to ,congress an assessment of the risk posed by climate change to the efficiency1 competitiveness1 and stability of the ,united ,states financial system as a whole4 7#b7 ,council ,for each year after the year in which the assessment required under paragraph 7#a7 is submitted1 the ,financial ,stability ,oversight ,council shall include in the annual report required under section #aab7;a77#b77,n7 of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecbb7;a77#b77,n77 an update to that assessment4 7c7 ,composition ,the subcommittee established under subsection 7a7 shall be composed of-- 7#a7 the ,chairman of the ,board of ,governors of the ,federal ,reserve ,system2 7#b7 the ,secretary of the ,treasury2 7#c7 the ,comptroller of the ,currency2 7#d7 the ,chairperson of the ,board of ,directors of the ,federal ,deposit ,insurance ,corporation2 7#e7 the ,chairman of the ,securities and ,exchange ,commission2 7#f7 the ,chairperson of the ,commodity ,futures ,trading ,commission2 and 7#g7 any other voting or nonvoting members that the ,financial ,stability ,oversight ,council determines to be appropriate4