Increased Financial Regulatory Focus on Climate Risk

As interest in environmental, social, and corporate governance (ESG) issues rises rapidly, companies are asking themselves what the impact on their business could be. Financial institutions are discussing how they should focus their efforts to address upcoming regulatory changes, stakeholders’ interests, and changes in investing appetite to include more ESG-responsible companies.

Bank regulators have begun to act, and investors, clients, and civil society are looking for actions, mitigation, adaptation, and transparency on the issues. The Addressing Climate Financial Risk Act of 2021 was introduced into the US Senate on March 4, in part to account for climate risks in stress tests, as the United Kingdom , France , and Eurozone have already done. The act will mandate stress tests for large institutions to measure their resilience to climate-related risks and requires the US regulators to include climate risk in their assessment of systemic importance.