Climate Change Financial Risk Act of 2025
- Bill Number
- H.R. 2823
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2025-04-10: Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
- Last Updated
- 2026-03-02T23:10:13Z
AI-Generated Summary
Summary of H.R. 2823: Climate Change Financial Risk Act of 2025
Purpose
The legislation aims to address the financial risks posed by climate change to the U.S. banking and financial system. It requires the Federal Reserve Board (often called the Fed) to create and update risk scenarios related to climate change, conduct stress tests on large financial institutions to evaluate their resilience, and survey mid-sized institutions. This is intended to promote financial stability by incorporating physical risks (like extreme weather damage) and transition risks (like shifts to low-carbon economies) into regulatory practices.
Key Provisions
- Sense of Congress: Outlines the growing impacts of climate change, including record global temperatures in 2024, rising extreme weather costs (over $2.9 trillion since 1980), disruptions to energy and supply chains, reduced labor productivity, and risks to fossil fuel investments. It emphasizes the need for financial regulators to assess these risks through tools like stress tests (simulated economic crises to check bank health).
- Definitions: Defines key terms for clarity:
- Physical risks: Financial threats from climate effects like higher temperatures, floods, sea level rise, wildfires, and water shortages.
- Transition risks: Financial threats from efforts to combat climate change, such as new laws, technologies, market shifts, lawsuits, or "stranded assets" (investments that lose value, like fossil fuel reserves).
- Covered entity: Large bank holding companies or nonbank financial firms (generally those with $100–250 billion+ in assets) subject to enhanced oversight.
- Surveyed entity: Mid-sized supervised banks or financial firms (assets of $10 billion+ but not covered entities).
- Other terms include "climate science leads" (heads of agencies like NOAA and EPA) and "value chain" (full lifecycle of products, from sourcing to disposal).
- Climate Risk Scenario Technical Development Group: The Fed must create a 10-member advisory group (5 climate scientists and 5 economists) to recommend climate risk scenarios. The group provides public resources, assists large firms in risk assessment, and serves without pay. Federal advisory committee rules do not apply.
- Development and Updating of Climate Change Risk Scenarios: Within 1 year of enactment, the Fed, with input from climate science leads and the advisory group, must develop three scenarios:
- One assuming 1.5°C global temperature rise above pre-industrial levels.
- One assuming 2°C rise.
- One based on current implemented policies (not just promises).
Scenarios account for global economic disruptions like supply chain issues, asset damage, labor impacts, and conflicts. They draw on international best practices for consistency and must be updated as science evolves.
- Climate-Related Enhanced Supervision: Amends existing law to require biennial stress tests for covered entities under adverse climate scenarios. For the first three tests, no penalties apply, but results are publicized and reported to Congress. Starting with the fourth test, firms must submit "climate risk resolution plans" detailing capital policies and fixes for vulnerabilities. The Fed can reject plans and limit capital distributions (e.g., dividends) if inadequate, ensuring plans do not harm vulnerable communities.
- Sub-Systemic Exploratory Survey: The Fed, with input from other bank regulators, develops and administers a survey to mid-sized firms every 2 years (starting 1 year after initial large-firm tests). It assesses resilience to climate scenarios, exposure in high-risk areas/industries, and adaptation plans. Public reports summarize aggregate results without naming firms; surveys do not prevent separate enforcement actions.
Significant Changes to Existing Law
- Amends Section 165(i)(1) of the Financial Stability Act of 2010 (Dodd-Frank Act) to mandate climate-inclusive stress tests for large firms, building on annual tests that currently ignore climate risks. Introduces "climate risk resolution plans" as a new requirement, with Fed objection powers tied to safety, soundness, and equity considerations.
- Expands the Fed's role in climate analysis, referencing its existing authority under laws like the Federal Deposit Insurance Act to address systemic risks.
- Adds coordination with climate agencies and international standards, which were not previously required for financial stress testing.
Potential Impacts
- Government Agencies: The Fed gains new responsibilities for scenario development, testing, and surveys, requiring collaboration with agencies like NOAA, EPA, and Energy Department. This could increase workload and need for expertise but enhance inter-agency coordination on climate-finance issues.
- Citizens: Improves financial system resilience against climate shocks, potentially reducing economic disruptions like power outages, supply shortages, or insurance losses. Rural and vulnerable communities may benefit from plans ensuring fair services, though mid-sized firms' adaptations could affect local lending.
- International Relations: Promotes alignment with global standards (e.g., from international banking supervisors), fostering data comparability and cooperation on cross-border risks like stranded assets or trade disruptions. No direct foreign policy changes, but it signals U.S. commitment to climate-integrated finance.
Main Stakeholders Affected
- Federal Reserve Board and Regulators: Primary implementers, including the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation for surveys and tests.
- Large Financial Institutions: Covered entities (e.g., major banks like JPMorgan or nonbanks like insurers) face mandatory stress tests and resolution plans, potentially altering capital strategies.
- Mid-Sized Financial Firms: Surveyed entities must report exposures and plans, influencing business models in climate-vulnerable sectors like agriculture or energy.
- Climate Science Agencies: "Climate science leads" (e.g., NOAA, EPA, NASA) provide input on scenarios, integrating scientific expertise into finance.
- Broader Economy: Investors, fossil fuel companies, renewable energy firms, and sectors like agriculture, construction, and insurance, due to risk assessments of stranded assets and disruptions.
Notable Legal, Constitutional, or Political Implications
- Legal: Leverages existing Fed powers for systemic risk oversight, avoiding new rulemaking authority. Introduces enforceable limits on capital distributions if plans are rejected, which could lead to litigation over "unsafe practices" or equity requirements. Public reporting promotes transparency without breaching confidentiality.
- Constitutional: No major issues; aligns with Congress's commerce clause authority over financial stability and does not infringe on states or individuals' rights.
- Political: Positions climate change as a core financial stability issue, potentially bridging partisan divides by focusing on economic risks rather than environmental policy. Could influence debates on regulatory burden for banks and international climate commitments, with biennial reports enabling congressional oversight.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (10)
Rep. Lynch, Stephen F. [D-MA-8], Rep. Cleaver, Emanuel [D-MO-5], Rep. Huffman, Jared [D-CA-2], Rep. Mullin, Kevin [D-CA-15], Rep. Elfreth, Sarah [D-MD-3], Rep. Carbajal, Salud O. [D-CA-24], Rep. Carson, André [D-IN-7], Rep. Magaziner, Seth [D-RI-2], Rep. Levin, Mike [D-CA-49], Rep. Green, Al [D-TX-9]
Recent Actions
- 2025-04-10: Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
- 2025-04-10: Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
- 2025-04-10: Introduced in House
- 2025-04-10: Introduced in House
Bill Versions
- Climate Change Financial Risk Act of 2025 — issued 2025-04-10 — PDF (26 pages)