,,ii #aaith ,,congress #ast ,session ,s4 #adga ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,april #aj1 #bjbe,mr4 ,schatz 7for himself1 ,ms4 ,warren1 ,mr4 ,merkley1 ,mr4 ,van ,hollen1 ,mr4 ,whitehouse1 ,mrs4 ,murray1 ,mr4 ,heinrich1 and ,mr4 ,booker7 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 and conduct 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 #bjbe4 #b4 ,sense of congress ,it is the sense of ,congress that-- 7#a7 #bjbd was the warmest year on record globally and the first calendar year that the average global temperature exceeded #a4e degrees ,celsius above pre-industrial levels2 7#b7 if current trends continue1 average global temperatures over the long term are likely to surpass #a4e degrees ,celsius above pre-industrial levels between #bjcj and #bjej2 7#c7 global temperature rise has already resulted in an increased number of heavy rainstorms1 coastal flooding events1 heat waves1 hurricanes1 wildfires1 and other extreme events2 7#d7 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 #b1iae1jjj1jjj1jjj2 7#e7 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 drought1 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 7ii7 drastically increase insured and uninsured losses2 and 7iii7 cause supply chain disruptions2 7#f7 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 investors domestically and globally1 and for companies and investors in other energy-intensive industries1 which could include trillions of dollars of stranded assets around the world2 7#g7 climate change poses uniquely far-reaching risks to the financial services industry1 including with respect to credit1 counterparty1 and market risks1 due to the number of sectors and locations impacted and the potentially irreversible scale of damage2 7#h7 weaknesses in how a financial institution identifies1 measures1 monitors1 and controls for the physical risks and transition risks associated with climate change could adversely affect the safety and soundness of a financial institution2 7#i7 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#aj7 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#aa7 as of the date of enactment of this ,act-- 7,a7 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,b7 the ,board of ,governors has conducted #a pilot climate scenario analysis exercise with only #f ,united ,states banking organizations2 7#ab7 the ,board of ,governors-- 7,a7 has stated that economic effects of climate change and the transition to a lower carbon economy pose an emerging risk to the safety and soundness of financial institutions and the financial stability of the ,united ,states2 7,b7 has the authority under section #ci of the ,federal ,deposit ,insurance ,act 7#ab ,u4,s4,c4 #ahcap-#a7 and section #afe of the ,financial ,stability ,act of #bjaj 7#ab ,u4,s4,c4 #ecfe7 to take into account the potentially systemic impact of climate-related risks on the financial system to preserve the safety and soundness of supervised institutions and the financial stability of the ,united ,states2 and 7,c7 should develop new analytical tools with longer time horizons to accurately assess and manage the risks described in subparagraph 7,b72 7#ac7 the ,climate-,related ,market ,risk ,subcommittee of the ,commodity ,futures ,trading ,commission has identified the importance of researching climate-related sub-systemic shocks to financial markets and institutions in particular sectors and regions of the ,united ,states2 and 7#ad7 the ,financial ,stability ,oversight ,council likewise identified climate change as an emerging threat to the financial stability of the ,united ,states and recommended that members of the ,council1 including the ,board of ,governors1 take action to strengthen the financial system and make it more resilient to climate-related shocks and vulnerabilities4 #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 ,assistant ,secretary for the ,office of ,international ,affairs of the ,department of ,energy2 7,e7 the ,administrator of the ,national ,aeronautics and ,space ,administration2 7,f7 the ,assistant ,secretary for the ,bureau of ,oceans and ,international ,environmental and ,scientific ,affairs of the ,department of ,state2 7,g7 the ,director of the ,united ,states ,geological ,survey2 7,h7 the ,secretary of the ,interior2 7,i7 the ,director of the ,national ,climate ,assessment2 7,j7 the individual from the ,united ,states elected to the ,intergovernmental ,panel on ,climate ,change ,bureau2 7,k7 the ,permanent ,representative of the ,united ,states to the ,world ,meteorological ,organization2 and 7,l7 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 physical1 climate-related effects1 including from-- 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 ,surveyed entity ,the term surveyed entity means a bank holding company1 nonbank financial company1 or other entity that-- 7,a7 is supervised by the ,board of ,governors1 the ,office of the ,comptroller of the ,currency1 or the ,federal ,deposit ,insurance ,corporation2 7,b7 has total consolidated assets of not less than #aj1jjj1jjj1jjj2 and 7,c7 is not a covered entity4 7#h7 ,technical ,development ,group ,the term ,technical ,development ,group means the ,climate ,risk ,scenario ,technical ,development ,group established under section #d7;a74 7#i7 ,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 subparagraph 7,a74 7#aj7 ,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 scientists1 with a demonstrated record of peer-reviewed publications and professional contributions to climate modeling1 climate risk assessment1 or related areas2 and 7,b7 #e of whom shall be economists1 with expertise in either the ,united ,states financial system or the financial 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 product1 and any information used in the development of the final work product1 publicly available2 7#d7 provide technical assistance to covered entities in assessing physical risks or transition risks2 and 7#e7 provide publicly available resources to entities that are not covered entities to help those entities assess physical risks and transition risks4 7d7 ,prohibition on compensation ,members of the ,technical ,development ,group shall serve without pay4 7e7 ,inapplicability of chapter #aj of title #e1 ,united ,states ,code ,chapter #aj of title #e1 ,united ,states ,code1 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 developed2 and 7ii7 does not take into consideration commitments for national policies and actions relating to climate change that1 as of the date described in clause 7i71 have not been implemented4 7#b7 ,international coordination ,in developing and updating the #c scenarios required under this subsection1 the ,board of ,governors shall take into consideration analytical 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#c7 ,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 7,c7 transportation2 and 7,d7 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 #bbe4h7;d77#d7 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#g7 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 #bjbe4 7ii7 ,tests 7,i7 ,in general ,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 shall be 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 #bjbe4 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 the 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 resolution plan 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 resolution plan with respect to climate risk planning 7referred to in this subclause as a climate risk resolution plan71 which shall be based on the results of the most recently conducted analysis of the covered entity under that subclause4 7bb7 ,contents ,each climate risk resolution plan required under item 7aa7 shall include-- 7,,aa7 a capital policy with respect to climate risk planning2 and 7,,bb7 qualitative and quantitative targets for balance sheet and off-balance sheet exposures1 and other business operations1 that remedy vulnerabilities identified in the most recently conducted analysis of the applicable covered entity under subclause 7,i74 7cc7 ,rejection ,the ,board of ,governors may object to a climate risk resolution plan submitted by a covered entity under item 7aa7 if the ,board of ,governors determines that-- 7,,aa7 the covered entity has not demonstrated that such plan is reasonable 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 resolution plan is otherwise not reasonable or appropriate1 including because the climate risk resolution plan no longer provides fair services to vulnerable and disadvantaged communities2 7,,cc7 the assumptions and analysis underlying the climate risk resolution plan1 or the methodologies and practices that support that plan1 are not reasonable or appropriate2 or 7,,dd7 the climate risk resolution plan otherwise constitutes an unsafe or unsound practice4 7dd7 ,general distribution limitation ,if the ,board of ,governors objects to a climate risk resolution plan 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 ,sub-systemic exploratory survey 7a7 ,development of survey ,the ,board of ,governors1 in consultation with the ,comptroller of the ,currency and the ,board of ,directors of the ,federal ,deposit ,insurance ,corporation1 shall develop a survey to assess-- 7#a7 the ability of surveyed entities to withstand each climate risk scenario developed under section #e2 7#b7 which surveyed entities possess a large concentration of business activities in geographical areas or industries that are significantly exposed to the short- and long-term impacts of climate change2 and 7#c7 how the surveyed entities identified under paragraph 7#b7 plan to make adaptations to the business models and capital planning of those entities in response to the risks presented in each climate change risk scenario developed under section #e4 7b7 ,administration of survey 7#a7 ,initial administration 7,a7 ,in general ,not later than #a year after the completion of the first analysis 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 the ,board of ,governors1 in consultation with the ,comptroller of the ,currency and the ,board of ,directors of the ,federal ,deposit ,insurance ,corporation1 shall administer the survey developed under subsection 7a7 to each surveyed entity4 7,b7 ,assessment and report ,not later than #ah months after the date on which the ,board of ,governors completes the administration of the survey under subparagraph 7,a71 the ,board of ,governors shall publicly release a report that-- 7i7 summarizes the results of the survey2 and 7ii7 analyzes whether the planned actions of the surveyed entities1 in the aggregate1 are plausible and would be effective4 7#b7 ,subsequent administration 7,a7 ,in general ,not later than #b years after the date on which the ,board of ,governors releases the report required under paragraph 7#a77;,b71 and biennially thereafter1 the ,board of ,governors shall readminister to each surveyed entity the survey developed under subsection 7a74 7,b7 ,subsequent report ,not later than #ahj days after the date on which each survey described under subparagraph 7,a7 is completed1 the ,board of ,governors shall publicly release a report that summarizes the results of the survey1 which shall include the analysis described in paragraph 7#a77;,b77ii74 7c7 ,effect of survey participation ,in any report released with respect to a survey conducted under this section1 the ,board of ,governors may not identify any individual surveyed entity that responded to the survey4 7d7 ,rule of construction ,nothing in this section may be construed to preclude the ,board of ,governors from pursuing an enforcement action against a surveyed entity because of a violation discovered by the ,board of ,governors during an examination of the surveyed entity that is independent of a survey administered under this section4