Climate Change Financial Risk Act of 2025
- Bill Number
- S. 1471
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2025-04-10: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
- Last Updated
- 2026-03-03T23:16:47Z
AI-Generated Summary
Purpose of the Legislation
The Climate Change Financial Risk Act of 2025 aims to address the financial risks posed by climate change to the U.S. banking and financial system. It requires the Board of Governors of the Federal Reserve System (often called the Fed) to work with other federal agencies to create tools for analyzing these risks, integrate them into financial oversight, and ensure large financial institutions are prepared for climate-related disruptions. The goal is to promote a safer and more stable financial system by treating climate change as an emerging threat, similar to other economic stresses.
Key Provisions
- Sense of Congress: The bill starts with a non-binding statement highlighting the urgency of climate change, including record global temperatures in 2024, rising extreme weather costs (over $2.9 trillion since 1980), and risks to sectors like energy, agriculture, and infrastructure. It notes that current Fed stress tests (annual checks on banks' ability to handle economic downturns) do not fully account for climate risks, and calls for better tools to assess physical risks (e.g., floods, heat waves) and transition risks (e.g., shifts to renewable energy stranding fossil fuel assets).
- Definitions: Key terms are defined clearly, such as:
- Physical risks: Financial harms from climate effects like higher temperatures, storms, sea-level rise, or water shortages impacting assets or operations.
- Transition risks: Costs from adapting to climate change, including policies, new technologies, market shifts, or lawsuits that could devalue assets.
- Covered entities: Large bank holding companies (banks owned by larger parent firms) or nonbank financial companies (e.g., insurers or investment firms) with at least $100–250 billion in assets, based on Fed determinations.
- Surveyed entities: Smaller supervised financial firms with $10 billion or more in assets.
- Climate science leads: Heads of agencies like NOAA, EPA, and NASA for expert input.
- Climate Risk Scenario Technical Development Group: The Fed must create a 10-member advisory group (5 climate scientists and 5 financial economists) to recommend climate risk scenarios. This group provides public resources and technical help to financial firms for assessing risks, without compensation for members.
- Development of Climate Risk Scenarios: Within one year of enactment, the Fed, with input from climate science leads and the advisory group, must develop three scenarios based on global temperature rises (1.5°C, 2°C, and a "business-as-usual" projection reflecting current policies). These consider disruptions to supply chains, agriculture, asset values, labor, and global trade. Scenarios will be updated as science evolves and aligned with international standards for consistency.
- Enhanced Supervision for Large Firms: Amends existing law to require biennial "climate stress tests" for covered entities, evaluating if they have enough capital to survive losses under the new scenarios. For the first three tests, no penalties apply, but results are public (summaries) and reported to Congress. After that, firms must submit "climate risk resolution plans" detailing how they'll build capital and adjust operations. The Fed can reject plans and restrict dividend payouts if inadequate.
- Sub-Systemic Exploratory Survey: The Fed, with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, must survey smaller firms (surveyed entities) within 1–2 years of the first large-firm test, and every two years after. The survey checks resilience to scenarios, exposure in vulnerable areas/industries, and adaptation plans. Public reports summarize aggregate results without naming firms, but the Fed can still enforce rules based on separate exams.
Significant Changes to Existing Law
- Amendments to the Financial Stability Act of 2010: Adds a new subsection requiring climate-specific biennial stress tests and resolution plans for large firms, building on annual stress tests that currently ignore climate factors. It expands the Fed's authority under existing safety-and-soundness laws (e.g., sections on deposit insurance and financial stability) to explicitly include climate risks in oversight.
- New Mandates: Introduces the advisory group, mandatory scenarios, and surveys—none of which exist in current law. The first three tests are penalty-free to allow adjustment, a novel grace period.
- No Changes to Smaller Banks: Focuses on large and mid-sized firms; community banks under $10 billion are unaffected.
Potential Impacts
- On Government Agencies: The Fed gains new responsibilities for coordination with agencies like EPA and NASA, potentially increasing workload and requiring new analytical tools with long-term horizons (beyond typical 1–2 year economic forecasts). Other regulators (e.g., FDIC) must collaborate on surveys, fostering inter-agency climate expertise but possibly straining resources.
- On Citizens: Could enhance financial stability by preparing banks for climate shocks, reducing risks of bank failures, economic downturns, or higher loan costs during disasters. Rural and coastal communities may benefit indirectly from better adaptation in agriculture and infrastructure financing, though short-term costs (e.g., higher capital requirements) might raise borrowing rates.
- On International Relations: Encourages alignment with global standards (e.g., from the Bank for International Settlements), promoting U.S. leadership in climate finance. It could influence international investors by signaling stronger U.S. resilience, but might create tensions if seen as regulatory overreach affecting global firms.
Main Stakeholders Affected
- Federal Reserve and Regulators: Primary implementers, including the Fed, OCC, FDIC, and climate science leads (e.g., NOAA, EPA).
- Large Financial Institutions: Covered entities (e.g., major banks like JPMorgan or nonbanks like AIG) face new tests and planning requirements, potentially needing to hold more capital or shift investments.
- Mid-Sized Financial Firms: Surveyed entities must report exposures and plans, increasing compliance but without direct penalties.
- Broader Economy: Fossil fuel companies and investors face highlighted transition risks; renewable energy sectors may gain from policy signals. Consumers and businesses in climate-vulnerable areas (e.g., farmers, coastal property owners) could see indirect protections.
Notable Legal, Constitutional, or Political Implications
- Legal: Builds on the Fed's existing powers to ensure bank safety and financial stability, avoiding new authorities that might face court challenges. Public transparency (e.g., scenario data, survey summaries) promotes accountability but protects firm-specific info to avoid market harm. The advisory group is exempt from formal advisory committee rules, streamlining setup.
- Constitutional: No direct issues, as it involves Congress directing executive agencies within enumerated powers (commerce regulation and fiscal policy). It respects federalism by focusing on national banks without overriding state laws.
- Political: Positions climate change as a core financial stability issue, potentially bridging partisan divides by framing it through economic lenses rather than environmental mandates. Could spark debate over regulatory burden on banks versus risk prevention, especially with the grace period for initial tests. If enacted, it signals U.S. commitment to Paris Agreement-like goals without new treaties.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (7)
Sen. Warren, Elizabeth [D-MA], Sen. Merkley, Jeff [D-OR], Sen. Van Hollen, Chris [D-MD], Sen. Whitehouse, Sheldon [D-RI], Sen. Murray, Patty [D-WA], Sen. Heinrich, Martin [D-NM], Sen. Booker, Cory A. [D-NJ]
Recent Actions
- 2025-04-10: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
- 2025-04-10: Introduced in Senate
Bill Versions
- Climate Change Financial Risk Act of 2025 — issued 2025-04-10 — PDF (26 pages)