Minutes of the Climate-related Financial Risk Advisory Committee

of the Financial Stability Oversight Council

July 18, 2023 

PRESENT:

Department of the Treasury (Treasury) 

Sandra Lee, Deputy Assistant Secretary for the Financial Stability Oversight Council (Council) 

and Chairperson of the Climate-related Financial Risk Advisory Committee (CFRAC)

CFRAC Members

Robert Litterman, Founder of Kepos Capital and Presiding Member of the CFRAC

Catherine Ansell, Executive Director of Climate Risk, JP Morgan Chase

Ed Kearns, Chief Data Officer, First Street Foundation

James Stock, Vice Provost for Climate and Sustainability, Harvard University

Laura Bakkensen, Associate Professor, University of Arizona’s School of Government and 

Public Policy 

Noah Kaufman, Research Scholar, Columbia University School of International and Public 

Affairs, Center on Global Energy Policy 

Peter Wilcoxen, Ajello Professor of Energy and Environmental Policy, Syracuse University 

Department of Public Administration and International Affairs

Viral Acharya, C.V. Starr Professor of Economics, New York University Stern School of 

Business, Department of Finance 

William Pizer, Vice President for Research and Policy Engagement, Resources for the Future 

Emily Grover-Kopec, Director, Energy and Climate Practice, Rhodium Group 

Ilmi Granoff, Senior Fellow and Adjunct Research Scholar, Columbia Law School Sabin Center 

for Climate Change Law

Ivan Frishberg, Senior Vice President and Chief Sustainability Officer, Amalgamated Bank

Janine Guillot, Board Member, B Lab Global 

Julie Renderos, Executive Vice President and Chief Financial Officer, Suncoast Credit Union 

Karen Diver, Senior Advisor to the President for Native American Affairs, University of 

Minnesota 

Michael Panfil, Senior Director and Lead Counsel, Environmental Defense Fund 

Wendy Cromwell, Vice Chair and Head of Sustainable Investment, Wellington Management 

Tracey Lewis, Policy Counsel for the Climate Program, Public Citizen

CFRAC Observer

Allen Fawcett, Chief of Climate Economics, Environmental Protection Agency 
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GUESTS:

Treasury

Nellie Liang, Under Secretary for Domestic Finance

Didem Nisanci, Chief of Staff

Catherine Berg, Deputy Director and Senior Policy Advisor on Climate, Office of International 

Financial Markets

Wilson Ervin, Senior Counselor, Office of Domestic Finance

Sean Hoskins, Director of Policy, Office of the Financial Stability Oversight Council 

Kaitlin Hildner, Senior Policy Advisor, Office of the Financial Stability Oversight Council 

Sini Matikainen, Senior Policy Advisor, Office of the Financial Stability Oversight Council 

Dennis Lee, Deputy Director of Operations, Office of the Financial Stability Oversight Council 

Colin Foos, Management and Program Analyst, Office of the Financial Stability Oversight 

Council 

Henry Perillo, Policy Analyst, Office of the Financial Stability Oversight Council 

Joshua Zajdel, Special Assistant for Policy, Office of the Financial Stability Oversight 

Council 

 

Board of Governors of the Federal Reserve System (Federal Reserve)

Michael Kiley, Deputy Director for Financial Stability

Morgan Lewis, Manager, Division of Supervision and Regulation 

Adele Morris, Senior Advisor, Financial Stability

Kevin Stiroh, Senior Advisor, Supervision and Regulation 

Caroline Norris, Financial Analyst, Financial Stability Climate Committee

Federal Deposit Insurance Corporation (FDIC)

Susan Baker, Chief of Policy Analysis, Division of Complex Institution Supervision and 

Resolution 

Drew Carayiannis, Policy & Risk Analytics Chief, Division of Risk Management Supervision 

Jonathan Pogach, Senior Economic Researcher, Division of Insurance Research

John Lammle, Resolution Policy Analyst 

Securities and Exchange Commission (SEC) 

Mika Morse, Climate Policy Counsel 

Commodity Futures Trading Commission (CFTC) 

Diana Dietrich, Assistant General Counsel

Consumer Financial Protection Bureau (CFPB) 

Eva Nagypal, Senior Economist 

Federal Housing Finance Agency (FHFA) 

Dan Coates, Deputy Director, Division of Research and Statistics
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Varun Joshi, Assistant Project Coordinator, Climate Change and ESG Working Group 

Jessica Shui, Supervisory Economist, Division of Research and Statistics

Comptroller of the Currency (OCC) 

Timothy Stumhofer, Director of Climate Risk

Yue (Nina) Chen, Chief Climate Risk Officer

Joanne Phillips, Counsel 

Office of the Independent Member with Insurance Expertise 

Diane Fraser, Senior Policy Advisor 

Federal Reserve Bank of New York (FRBNY)

Nico Becka, Principal, Global Markets and Investments 

Dina Maher, Vice President

Lee Seltzer, Financial Research Economist, Financial Intermediation Policy Research Division

Office of Financial Research (OFR)

Steven Bright, Senior Financial Analyst 

Ashley Kent, Senior Product Manager for Data Products 

Qiana Brown, Management and Program Analyst 

Adrienne Read, Management and Program Analyst 

Federal Insurance Office (FIO)

Elizabeth Brown, Senior Insurance Regulatory Policy Analyst 

New York State Department of Financial Services (NYDFS)

Catherine Doll, Assistant Counsel

National Association of Insurance Commissioners (NAIC)

Jennifer Gardner, Data Coordination and Statistical Analysis Manager 

North American Securities Administrators Association (NASAA)

Vincente Martinez, General Counsel

PRESENTERS:

Presentation on First Charge Questions: What climate-related financial risk drivers are most 

likely to result in a systemic stability concern? What should be prioritized for monitoring for 

potential financial stability risks considering CFRC responsibilities? 

• James Stock, Vice Provost for Climate and Sustainability, Harvard University 

• Wendy Cromwell, Vice Chair and Head of Sustainable Investment, Wellington 

Management

• Emily Grover-Kopec, Director, Energy and Climate Practice, Rhodium Group 
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Presentation on Second Charge Questions: How does climate-related financial risk compound 

traditional sources of financial risk? How would you measure and monitor both acute and 

chronic physical risks as a financial risk amplifier? 

• Viral Acharya, C.V. Starr Professor of Economics, New York University Stern School of 

Business, Department of Finance 

• Catherine Ansell, Executive Director of Climate Risk, JP Morgan Chase

Presentation on Third Charge Question: What scenario narratives, data characteristics, 

statistical methods, and/or modeling strategies would be well-suited for transition and physical 

risk scenario development and analysis? 

• William Pizer, Vice President for Research and Policy Engagement, Resources for the 

Future

• Allen Fawcett, Chief of Climate Economics, Environmental Protection Agency 

• Noah Kaufman, Research Scholar, Columbia University School of International and 

Public Affairs, Center on Global Energy Policy

1. Welcome and Opening Remarks

Sandra Lee, Chairperson of the CFRAC, called the meeting to order at approximately 12:00 P.M. 

The committee convened by videoconference. 

The Chairperson began by describing the ongoing work of the Council’s staff-level Climaterelated Financial Risk Committee (CFRC) to address data gaps and identify priority data needs 

for member agencies. She discussed progress in collaboration with the OFR on its Joint Analysis 

Data Environment (JADE), which is intended to advance agencies’ collective understanding of 

scenario analysis and develop metrics for climate-related financial risk assessment. She said that 

in the meeting, CFRAC members would present on the first round of charges introduced in the 

initial meeting of the CFRAC on March 7, 2023. 

The Chairperson then introduced Nellie Liang, Under Secretary for Domestic Finance at

Treasury. Under Secretary Liang began by highlighting that the number of climate disasters and 

their costs have increased dramatically in recent years. She noted that according to the National 

Oceanic and Atmospheric Administration (NOAA), since 1980 the United States has

experienced 357 weather or climate disasters where overall damages or costs had reached or 

exceeded $1 billion, averaging approximately eight such disasters per year. She said that in the 

previous three years alone, there had been a total of 60 such events, an average of 20 per year, 

which she noted is two and a half times greater than the long-term average. She further noted 

that so far in 2023, 12 confirmed billion-dollar disaster events had already occurred.

Under Secretary Liang said that increasing climate risks had contributed to recent decisions by 

several insurance providers to cease coverage for entire categories of new policies, including 

home insurance, across large areas of the country. She highlighted developments in states like 
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California, Florida, and Louisiana, where the risks of climate-related disasters as well as gaps in 

insurance coverage are increasing.

Under Secretary Liang stated that Council members and the CFRAC are particularly interested in 

understanding how the effects of climate change could increase financial stability risks. She 

noted that in the Council’s 2021 climate report, the Council concluded that climate change is an 

emerging threat to the financial stability of the United States. She said that while the Council’s

broad approach to identifying risks to financial stability is well-suited for integrating climate 

risks, there are significant analytical challenges to doing so, including the complexity of

transmission channels that link physical and transition risks to economic activity and to the 

financial sector.

Under Secretary Liang noted that as part of its work on financial stability, the Council seeks to 

ensure that the financial system is resilient to shocks or conditions that could impair its ability to 

support economic activity. She stated that adverse shocks could arise from within the financial 

system or from external sources, and that such shocks can be amplified by vulnerabilities in the 

financial system. She said that these shocks can also impact the system as a whole because of 

interconnections and spillovers among firms and activities, leading to system-wide disruptions in 

the provision of financial services.

Under Secretary Liang stated that when analyzing financial stability risks, it is important that 

experts in climate science, economics, and financial analysis be involved at each step. She said

that the Council seeks to understand the links among climate risks, economic sectors, the 

macroeconomy, and specific financial risks. She noted that both acute and chronic physical risks 

have the potential to lead to sharp changes in the values of certain assets and liabilities, which 

can impact economic activity and the financial sector. She stated that changes in the behavior of 

businesses and households and in government policies, along with other transition effects, could 

increase financial risks when such transitions are delayed or occur in an unexpected or abrupt 

manner.

Under Secretary Liang said that while incorporating risks from climate-related shocks is a 

relatively new exercise for financial regulators, these shocks are likely to affect financial 

institutions and market infrastructure through familiar risk channels, such as credit risk, market 

risk, and operational risk. She said that these risks have long been the focus of prudential 

supervision and regulation by Council members. She stated that gathering adequate data is vital 

to measuring the effects of climate-related physical and transition risks on traditional risk 

channels, and she noted the importance of implementing more robust disclosures so that lenders 

and investors can more effectively assess the risks.

Under Secretary Liang stated the usefulness of evaluating the effects of climate risk on financial 

institutions and markets through the lens of traditional financial. She said that while safety and 

soundness of financial firms are necessary conditions for financial stability, any assessment of

financial stability should also consider the broader financial system. She stated that a system-
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wide approach involves combining individual firm and market risk assessments by considering

interconnections and spillovers, which may magnify the effects on individual firms.

Under Secretary Liang said that a system-wide approach may also highlight possible trade-offs. 

She noted, for example, that the actions individual firms take to protect themselves may lead to 

unexpected losses at other firms or hinder objectives related to low- and moderate-income 

community development. She noted that these possible tradeoffs illustrate the importance of 

working to understand the transmission channels through which climate risk affects the financial 

system.

Under Secretary Liang stated that scenario analysis represents a useful approach for

understanding the impact of climate-related financial risk on the financial system as a whole. 

She discussed the development of scenario analysis, and noted that it has been used more 

extensively by other countries. She also noted that it is an approach recommended in the 

Council’s 2021 climate report. She asked the CFRAC to continue to examine how 

interconnections and spillovers could play out; how scenarios could be used to model the

complex inter-relationships between climate risk and financial stability; and whether other 

methods could be used to complement scenario analysis in developing the Council’s

understanding of transmission channels.

Under Secretary Liang concluded by stating that a stable and robust financial system has the 

potential to help mitigate climate-related physical and transition risks. She noted the critical role 

that insurance and capital markets play in helping businesses and communities prepare for and 

recover from climate-related disasters. She said that better information and corporate disclosures 

are key to effective financial markets and institutions. 

2. First Charge Presentation and Discussion

The Chairperson turned to Robert Litterman, Founder of Kepos Capital and Presiding Member of 

the CFRAC, to introduce the presenters for the first charge questions: What climate-related 

financial risk drivers are most likely to result in a systemic stability concern? What should be 

prioritized for monitoring for potential financial stability risks considering CFRC 

responsibilities? Mr. Litterman called on James Stock, Vice Provost for Climate and 

Sustainability at Harvard University; Wendy Cromwell, Vice Chair and Head of Sustainable 

Investment at Wellington Management; and Emily Grover-Kopec, Director of the Energy and 

Climate Practice at Rhodium Group, to begin their presentation. 

Mr. Stock said that the presentation would provide a conceptual framework for how climate risks 

could affect financial system risk. He said that the presenters would first describe how climate 

change and the energy transition could contribute to instability in the financial system and the

implications for monitoring climate-related financial risk. He said that by mapping the various 

physical and transition risks from climate change, the presenters were seeking to develop a 

framework for how these risks can individually and collectively undermine the financial system. 
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Mr. Stock noted some key terms used in the presentation, such as physical and transition risks, 

vulnerabilities, and shocks. He said that the presenters took a broad view of transition risks, 

which he said encompass geopolitical risks associated with the clean energy transition. He then 

discussed various potential scenarios. He said that the first scenario contemplated that an 

extreme weather event could strike an area with inadequate grid-level battery storage, which in 

turn could impair regional businesses’ abilities to pay bank loans. He said that if business 

disruptions are prolonged, this could have cascading impacts on banking system stability. He 

discussed a scenario in which a repeal of tax credits incentivizing large investments in clean 

energy could lead to write-downs and could increase financial system vulnerability to other 

future climate and non-climate shocks. 

Mr. Stock said that a framework to evaluate climate threats should consider shocks that are large 

enough to threaten systemic stability; shocks that are small but correlated and may contribute to

a large aggregate impact or intensify because of existing amplifiers in the financial system; and

climate-related conditions or events that exacerbate the vulnerability of the financial system to 

shocks. He said that there are large gaps in our understanding of systemic climate risks, and both 

qualitative and quantitative research would be useful to fill these gaps. Noting that most climate 

shocks by themselves are unlikely to generate systemic risks, he said that research should focus 

on climate impacts with the highest potential for creating systemic risk or that present heightened 

vulnerabilities when climate shocks cluster or combine. 

Ms. Grover-Kopec then discussed the climate risk landscape. She said that researchers should 

focus on areas of “clustered risk,” which she defined as sources of risk that may be highly 

correlated or flow through the financial system and economy through similar pathways to create 

financial stability concerns. She stated that the main goal of the presentation was to generate

discussion on a framework for evaluating clustered risk rather than present a comprehensive, 

definitive answer on the risk drivers most likely to cause systemic stability concerns. 

Ms. Grover-Kopec described the physical risk portion of the framework. She discussed physical 

risks themselves, such as rising sea levels; the degree of certainty associated with physical risks; 

and the extent to which human activities, such as forestry management practices, could impact 

the occurrence of physical risks. 

Ms. Cromwell said that the framework took a broad view of transition risks, which she said 

include geopolitical, business transition, and policy-driven sources of risks. She said that 

potential risks posed by policy decisions can arise from a misalignment of policy-driven demand 

and limited transitional business supply. She stated that geopolitical threats like climate 

migration and de-globalization could compound climate-related financial risks, since the 

consequences would likely affect global markets as well as the ability of businesses to fulfil 

certain climate commitments. 
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Ms. Cromwell said that increased physical and transition risks, including risks to the power grid, 

stresses to supply chains, inflation, an increasing export share of oil and gas, and credit risks, 

could negatively impact macroeconomic activity. She said that a physical risk like extreme heat 

could affect power grids and impair the macroeconomic activity that depends on that energy 

source. She highlighted the connection between corporate carbon disclosures and the potential 

impacts upon equity valuation.

Ms. Grover-Kopec described three key qualitative clusters of climate risks. First, she noted that 

a significant portion of the overall risk flow derives from physical risks and geopolitical 

transition risks that impact macroeconomic activity. Second, she noted that policy-driven 

transition risks have a consistent impact on equity valuation. Third, she said that property 

valuations are exposed to a wide variety of both physical and transition risks. 

Ms. Grover-Kopec stated that a cluster of common factors may combine to exacerbate the impact 

of a source of climate risk on the financial system. She described factors that contributed to 

several large insurers exiting the California property insurance market, such as higher 

reinsurance costs; inflation, which increases the cost of rebuilding after a loss; and state-level 

regulation that limits the pace at which insurers can increase their rates. 

Ms. Cromwell then provided several international examples from the transition risk portion of 

the framework. She said that property markets in the United Kingdom and Germany represent a 

key risk pathway, given the potential for changing property standards to destabilize the mortgage 

and property markets. She said that in Germany, rent control had led to a return on investment

on forced residential conversions below the cost of capital, and in the United Kingdom, only 15

percent of commercial buildings comply with new leasing standards, which in turn impacts

property values. She stated that the conversion rates for both markets are complicated by rising 

costs associated with higher interest rates. She said that the proportion of oil and gas as a 

percentage of total U.S. exports and the proportion of energy transition equipment (such as solar 

cells and wind sets) as a percentage of total U.S. imports are both increasing. She said that 

acceleration in the energy transition could translate into a rapid decline in such exports, leading 

to a potentially unfavorable market reaction, inducing pressure on the U.S. dollar. She said in 

conclusion that such a scenario could increase the potential for systemic risk. 

During the discussion following the first charge presentation, participants asked clarifying 

questions about the framework and discussed ways in which it could be expanded in the future.

Participants discussed how the proposed framework would evaluate several conditions, 

including: private sector revenue decreases due to public sector investment in low-carbon 

technology; wealth effects from changes in asset values due to climate change or government 

responses to climate change; and the increasing reliance on insurers of last resort, such as the 

California Fair Access to Insurance Requirements Plan. Participants noted the importance of 

including links to credit risk in the framework. Participants also discussed the value of reverse 

stress testing to determine which risk clusters in the framework present high levels of risk to the 

financial sector.
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4. Second Charge Presentation and Discussion

The Chairperson turned to Mr. Litterman to introduce the presenters for the second charge

questions: How does climate-related financial risk compound traditional sources of financial 

risk? How would you measure and monitor both acute and chronic physical risks as a financial 

risk amplifier? Mr. Litterman called on Viral Acharya, C.V. Starr Professor of Economics at

New York University Stern School of Business’s Department of Finance, and Catherine Ansell,

Executive Director of Climate Risk at JP Morgan Chase, to begin their presentation. 

Mr. Acharya said his portion of the presentation would reference several case studies to 

demonstrate how climate risk interacts with weak economic conditions, as well as the different 

effects of acute and chronic physical risks. 

Mr. Acharya discussed the first case study, which he noted incorporated several datasets,

including the Spatial Hazard Events and Losses Database for the United States (SHELDUS);

NOAA disaster data; economic performance data developed by the National Bureau of 

Economic Research addressing employment, house prices, and recessions; and aid data from the 

period 1995-2020. He discussed the difference in risks associated with acute and chronic 

physical climate stressors. He said that acute stressors are harder to predict, and he noted that 

risks are directly correlated to the increased severity of the acute stress, such as extreme weather 

events. He said that chronic stressors refer to the sustained long-term shifts in climate patterns

and can cause much more damage over time. He said that his study defined an event as “acute”

if associated damage was in the upper 90th percentile and event duration was in the lowest 10th

percentile. 

Mr. Acharya described the findings of the first case study, which examined the differences in 

economic outcomes for areas that experienced acute physical climate stressors compared to 

chronic physical climate stressors. He noted that his study found that areas that experience acute

climate stressors experienced employment growth for certain sectors (e.g., reconstruction 

services) immediately after the acute stress event. He said that his study found that areas that 

suffered from chronic physical climate stressors experienced more negative impacts on 

employment and house prices, particularly if there was an ongoing recession, as compared to 

areas that experienced only acute climate stressors. He noted that it is difficult to analyze the 

impact of government aid, which could mitigate the economic effects of acute climate stressors. 

He said it is unclear how much of the difference in the effects from acute and chronic physical 

stressors is due to government aid, because such aid is less available for areas experiencing 

chronic climate stressors. He noted that because government aid varies from state to state, it is 

necessary to examine aid decisions of the Federal Emergency Management Agency at a more 

granular level. He said that more research needs to be done to understand how aid affects acute

and chronic risks scenarios.
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Mr. Acharya described the next study, which examines mitigation efforts for acute and chronic 

heat risk over 12 years (2009-2020) using heat data from the SHELDUS database. He said his 

study examined two sets of counties, one of which experienced chronic heat stress and one of 

which did not. He said his study then examined companies operating in both sets of counties to 

determine if there was evidence of companies making efforts to shift resources and business 

away from counties that have been affected by chronic heat risk and toward counties that have 

not been affected by such risk. He noted that his study found that counties that experienced heat 

stress saw decreases in the number of establishments, employment, and household income 

growth. Conversely, he said the study found that counties that did not experience heat stress saw

instances of growth. He then noted that his study also compared outcomes between small and 

large firms. He said his study found that small firms in counties that experienced heat stress lost

employment to large firms, potentially because larger firms are better able to manage shocks. 

Ms. Ansell discussed approaches and considerations for how banks perceive the complexity of 

climate risk. She discussed how climate risks can be a driver of traditional risk types, such as

strategic, credit, market, and operational risk. She said that considerations include how much 

risk of loss a firm is willing or able to accept, whether physical or transition risks are 

predominant, what transmission channels are relevant, and whether these transmission channels 

compound previously identified risks. 

Ms. Ansell noted that transition risks can stem from shifts in consumer preferences and 

technological changes. She said that physical risks can lead to supply chain disruptions that 

decrease profitability and can affect commodity prices. She described a case study on 

homeowners’ property insurance. She noted that property insurance supports stability in the 

mortgage market by reducing the idiosyncratic financial impact to consumers associated with

damage from severe weather events, including those driven by or exacerbated by increasing

physical climate risk. She identified two channels through which changes in insurance coverage 

and pricing could impact banks by driving credit losses. First, she stated that insurance coverage 

gaps, whereby consumers are not purchasing adequate coverage for disaster events, could result 

in consumers being unable to repair their home following a disaster event, which can lead to a 

lower loan-to-value (LTV) ratio and subsequent increased credit risk. Second, she stated that

sharp increases in the cost of insurance decrease affordability, particularly for borrowers with

higher debt-to-income ratios. She noted that both coverage gaps and rate increases can result in 

credit risk increases.

Ms. Ansell said that if insurance companies cannot increase insurance premiums to reflect the 

cost of increased risk then it may no longer be cost-effective for insurers to offer those products 

to consumers. She said that this problem is particularly acute when another part of the financial 

system requires consumers to have insurance, for example in connection with the purchase of a

home. She noted that when private insurance companies withdraw, state governments may step 

in to provide insurance. She said that even if state governments subsidize the cost of premiums, 

consumers may still effectively pay for the higher risk through increased taxes. She stated that 

any time market pricing is disconnected from the true cost of a risk, policymakers may want to
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monitor this disconnect, as well as the insurance coverage gap and debt-to-income ratios. 

Finally, she noted the relationship between insurance and reinsurance as a consideration in 

understanding insurance market developments. 

During the discussion, participants asked clarifying questions about the impact of foreclosures.

Participants discussed the usefulness of modeling individual and clustered disaster scenarios for 

understanding risk, and also discussed limitations in the ability of models developed by the 

Network for Greening the Financial System (NGFS) to model multiple shocks. Participants also 

discussed the importance of accurate land valuation and the lack of studies seeking to understand 

if there are differences in land valuations, or the frequency of new mortgages, among low- and

moderate-income homeowners as compared to higher-income homeowners following disaster 

events. 

6. Third Charge Presentation and Discussion

The Chairperson turned to Mr. Litterman to introduce the presenters for the third charge

question: What scenario narratives, data characteristics, statistical methods, and/or modeling 

strategies would be well-suited for transition and physical risk scenario development and 

analysis? Mr. Litterman called on William Pizer, Vice President for Research and Policy 

Engagement at Resources for the Future; Allen Fawcett, Chief of Climate Economics at the

Environmental Protection Agency; and Noah Kaufman, Research Scholar at the Columbia 

University School of International and Public Affairs’ Center on Global Energy Policy, for the

presentation. 

Mr. Fawcett said that transition risk analysis captures several outputs, including preference 

changes, technological changes, policy changes, and expectation changes. He said that outputs 

associated with these risks include price changes associated with the cost of energy prices, shifts

in economic activity, regional changes in areas suffering chronic and frequent acute disasters, 

skill gaps in the workforce, risks for government spending (including the crowding out of 

collective investment and elevated debt levels), capacity additions to fully implement the 

Inflation Reduction Act, trade tensions, competitiveness, carbon border adjustments, policy and 

regulatory uncertainty, and political polarization. 

Mr. Fawcett said that transition risks vary for different stakeholders. He noted that workers are 

typically concerned about job and unemployment shifts; households about energy costs and other

expenses; firms about changing consumer preferences; financial institutions about their balance 

sheets; governments about fiscal exposure; and central banks about financial stability. He stated 

that throughout the financial sector, individual and firm-wide transition risk vulnerabilities 

generally depend on policy choices, technological capabilities, and private behavior. He said

that should a systemic financial risk arise, it can undermine confidence in financial institutions

and markets, which may compound or trigger inflation or a recession. 
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Mr. Kaufman described the recent scenario analysis exercise undertaken by the Federal Reserve. 

He said that the goal of this exercise was to learn about large banking organizations’ climate 

risk-management practices and challenges. He said that the exercise is focused on transition 

risks, which he noted are based on NGFS scenarios. He then described opportunities to improve

the exercise, by capturing more of the potential desired outputs of a transition risk analysis 

described in the beginning of the presentation by Mr. Fawcett. He also said that in his view, the 

Federal Reserve exercise relied on an outdated policy pathway that incorporates carbon prices. 

He said that the White House report Selecting Climate Information to use in Climate Risk and 

Impact Assessments presented a viable alternative to carbon prices. He explained that this report 

details, with domestic and international geographical granularity, quantitative approaches for 

incorporating climate transition risks into real-world policy approaches.

Mr. Pizer said that the consequences associated with delayed action on transition risks may have 

widespread effects. He noted several examples, including the rapid pace of economic changes;

the occurrence of unexpected events (including technology breakthroughs and shifts in consumer 

sentiment); and high transition costs, which collectively or individually could result in significant 

dislocation of jobs and business activity, failure of financial institutions, financial market 

volatility, or a recession. 

During the discussion, participants discussed use cases for NGFS models compared to other 

models with higher sector-level or risk-category granularity. Participants also discussed the 

importance and role of consumer education in the mitigation of physical and transition risks as 

well as how to account for energy system replacements and the associated geopolitical risks 

when developing scenarios.

8. Group Discussions on Climate-related Risks and Insurance

Kaitlin Hildner, Senior Policy Advisor in the Office of the Financial Stability Oversight Council 

at Treasury, then divided attendees into four separate groups for a discussion regarding climaterelated risks and insurance. The first group consisted of (1) CFRAC members Ms. GroverKopec, Ivan Frishberg, Ms. Ansell and CFRAC observer Mr. Fawcett; (2) CFRC members Adele 

Morris, Diane Fraser, Adrienne Read, and Elizabeth Brown; and (3) Henry Perillo, Policy 

Analyst in the Office of the Financial Stability Oversight Council at Treasury. The second group

consisted of (1) CFRAC members Tracey Lewis, Julie Renderos, and Ms. Cromwell; (2) CFRC 

members Nina Chen, Morgan Lewis, Timothy Stumhofer, John Lammle, Joanne Phillips, and 

Wilson Ervin; and (3) Sini Matikainen, Senior Policy Advisor in the Office of the Financial 

Stability Oversight Council at Treasury. The third group consisted of (1) CFRAC members Mr.

Stock, Janine Guillot, Laura Bakkensen, Mr. Litterman, and Mr. Pizer; (2) CFRC members 

Susan Baker and Steven Bright; and (3) Sean Hoskins, Director of Policy in the Office of the 

Financial Stability Oversight Council at Treasury. The fourth group consisted of (1) CFRAC 

members Ilmi Granoff, Peter Wilcoxen, Michael Panfil, and Ed Kearns; (2) CFRC members

Jessica Shui and Caroline Norris; and (3) Gordon McDonald, Senior Policy Advisor in the Office 

of the Financial Stability Oversight Council at Treasury, and Ms. Hildner.
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Following the separate group discussions, the Chairperson invited a member from each group to 

summarize their discussion. 

Ms. Ansell said that Group 1 noted that decisions on insurance policy are primarily political 

decisions. She discussed the likelihood that future physical risks will disproportionately affect

low- and moderate-income Americans, who may not be able to afford higher insurance

premiums. She noted that the group discussed the disconnect between how insurance and 

reinsurance are currently priced. She said that consumers will ultimately bear the costs of policy 

decisions that limit firms’ ability to price in climate change risks when those firms no longer 

write coverage in certain geographical regions. 

Ms. Lewis said that Group 2 discussed the need to develop a broad framework that regulators 

can use to mitigate cost increases associated with reinsurance and physical risks impacting 

consumers and investors. She said that environmental justice considerations should be factored 

into any policy decisions. 

Ms. Guillot said that Group 3 discussed the economic implications of changes to insurance

coverage, given that mortgage and property markets are contingent upon reasonably priced

insurance. She said that insurance coverage is not an issue only for the handful of states that 

have recently seen insurance coverage gaps, but is a nationwide concern. She stated that the 

group discussed whether coverage gaps are emerging because insurance price changes are 

prohibited by state policy or because risks have changed to an extent that they cannot be 

reasonably priced; the mortgage-backed securities market, which she said raises both credit risk 

and liquidity risk; and equity concerns across socioeconomic status, race, and geography. 

Mr. Granoff said that Group 4 discussed whether increased climate stress and solvency issues

will lead insurers to retreat from high-risk areas. He noted that such a retreat can increase

vulnerability to economic shocks by eroding housing prices and increasing systemic risks. He 

stated that the group discussed whether advocating for more affordable insurance pricing

adequately addresses the problem or simply delays any meaningful action to address the 

underlying issues, driving up reinsurance costs and heightening physical risks.

9. Discussion Regarding Upcoming Set of Proposed Charges

Following the group readouts, the Chairperson turned to Mr. Litterman to introduce the 

upcoming set of proposed charges, which the CFRAC subsequently discussed. The proposed 

charges were presented as follows: 

• Discuss data sources and collection methods for human factors that serve as potential 

physical risk mitigants, e.g., people’s awareness of risks and people's desire to live in 

high-risk areas. How should such financial institutions consider these risk mitigants? Is 

there research on what resources make a difference in educating consumers about the 

risks?
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• The timing of when the physical risk occurs might be quite disconnected from when the 

financial sector responds to the physical risk (“Minsky moment” concern). For example, 

the timing of when the financial sector might take into account wildfire risk in asset 

valuation might not immediately fall after a wildfire event. Discuss how you would 

approach understanding this disconnect.

• Distributional outcomes of risk pricing: While providing appropriate incentives, policy 

approaches that price climate risk into insurance, mortgage rates, or other homeowner 

costs may result in higher costs of living in certain neighborhoods, which could raise an 

issue for Community Reinvestment Act or other fair lending requirements for financial 

institutions. Discuss the interplay of fair lending in pricing climate risk into climatevulnerable areas and how regulators and financial institutions could navigate these two, at 

times competing, priorities.

• How might a severe weather event or series of weather events lead to a housing market 

crash/bubble burst? Proposed scenario to explore:

o Florida/Texas/Louisiana experiences an unusually heavy hurricane season with 

multiple hurricanes that cause severe damage prompting individual and 

institutional rapid shifts in perceptions of climate risk.

o Florida state-backed Citizens Insurance withdraws insurance coverage from (or 

substantially increases pricing for/ they are unable to obtain reinsurance coverage) 

certain heavily populated areas of Florida that now do not have access to 

affordable insurance. National Flood Insurance Program increase insurance 

premiums and re-zones properties on the back of large-scale losses.

o Buyers are not able to obtain insurance, and thus buyers are no longer able to 

obtain financing, and existing homeowners experience a significant decrease in 

housing value that disproportionately impacts low- and moderate-income

households and vulnerable communities. 

o Communities in other areas with similar potential climate risk exposure 

experience a sudden drop in value as insurers increase pricing and/or buyers 

become more wary of purchasing homes that may experience significant changes 

with respect to insurance coverage.

Following the discussion, the Chairperson offered closing remarks, and discussed next steps 

regarding charges and scheduling details for the next meeting. 

The meeting adjourned at approximately 4:50 P.M.