The Commodity Futures Trading Commission released a request for information to better understand how climate-related risks affect commodities and to consider its role in protecting the commodities markets from climate-related financial risks.
On October 7, we submitted a comment highlighting the potential benefits of climate related risk disclosure requirements which would allow consumers to make better informed decisions. Given the risks that climate change poses for the economy in general and the commodities and futures markets specifically, the comment explains why climate-related risk disclosure requirements would be a reasonable tool to help protect the market from volatility. It also underscores that, contrary to recent claims, disclosure requirements focused on the financial risks that climate change poses would be consistent with First Amendment principles.
Climate change threatens to substantially undermine the stability and health of the U.S. financial system, including the commodities market. Increasingly severe weather disasters, rising sea levels, and frequent droughts and wildfires all affect market stability by imposing substantial costs on the economy, interrupting economic productivity, and heavily damaging resources and property. Climate change specifically impacts Commission-registered market participants through both physical and transitional risks by escalating market volatility, destroying assets, and frustrating current risk management frameworks.
The Commission currently uses risk disclosure requirements to protect the commodities market from other dangers, such as fraud and the risks of relying on clearing organizations. Climate-related risk disclosure requirements could similarly benefit market participants by allowing consumers to make better informed decisions and enabling market participants to prepare for potential financial upset due to climate disasters.
Despite the claims of some commenters, if the Commission decides to proceed by requiring appropriate climate-related risk disclosures, such requirements will satisfy First Amendment scrutiny. Just as the extensive prior disclosure requirements have been accepted without raising First Amendment concerns, any new disclosure requirements for climate-related risks may be exempt from First Amendment review.
Read the comment here.