On July 28, 2022, the US Office of Financial Research (“OFR”) launched a new initiative on climate-risk data.1 The initiative is intended to help US financial regulators assess risks to financial stability stemming from climate change and will be known as the Climate Data and Analytics Hub.
OFR’s climate data initiative will collect, integrate, and process financial and non-financial data from across the federal government and from public sources. It will include data on wildfire, crop condition, precipitation, and other climate-related variables that may help the government to assess and identify climate-related financial risks to financial stability.2
OFR’s climate data initiative initially will be open only to the Federal Reserve Board of Governors and the Federal Reserve Bank of New York, but OFR plans to expand access to all of the members of the Financial Stability Oversight Council. It is unclear from OFR’s announcement if this expansion will include state regulators, such as state insurance, banking, and securities agencies. We note that some state regulators have already established their own climate risk units and presumably could benefit from having access to OFR’s data.3
The financial services industry has been vocal about the need for climate data as a predicate to understanding and managing climate-related financial risks.4 While there have been international efforts to develop climate data resources, there is no standardized approach, generally recognized taxonomy, or comprehensive data set for climate data.5 Ideally, a framework for climate data would precede the collection and analysis of that data and would be based on widespread public participation. However, this does not appear to be the case based on OFR’s announcement.
It also appears that OFR’s initiative will focus on data that describes the relationship between climate change and financial stability risk, although that data may be of use in understanding other aspects of climate-related financial risk. Therefore, it is unfortunate that OFR has foreclosed participation by the private sector in the initiative. The private sector may have good ideas about public data sources (or anonymized private data sources) on climate-related financial risks, and financial institutions would most likely welcome any good data that they could use in climate risk management activities. But, again, this sort of collaboration does not appear to be envisioned by OFR’s announcement.
It is not clear how regulators will disclose their use of data from OFR’s initiative. For example, if a regulator analyzes OFR data and decides to propose a rule based on that analysis, will it be required to disclose the analysis or underlying data as part of the notice and comment rulemaking process? Or if a regulator identifies climate-related trends in OFR data and decides to focus its supervisory activities on specific financial institutions or financial products, will it inform those institutions or the public of the use of OFR data? There is general recognition of the tension created by using nonpublic data in rulemaking, and OFR’s initiative may raise broader concerns with its lack of transparency.6
It remains to be seen how OFR’s data initiative will develop, but we expect the issue of climate data availability to remain a focal point of the climate risk management discussion.
1 Press Release, Office of Financial Research Pilots Cutting-Edge Data Hub to Assist with Climate-risk Assessments (July 28, 2022), https://www.financialresearch.gov/press-releases/2022/07/28/office-of-financial-research-pilots-cutting-edge-data-hub-to-assist-with-climate-risk-assessments/.
2 See our Legal Update on the development of approaches to understanding financial stability risks: https://www.mayerbrown.com/en/perspectives-events/publications/2022/07/federal-reserve-releases-research-on-approaches-for-assessing-climate-related-financial-stability-risks.
4 E.g., Alison Touhey, Principles for Climate-Related Financial Risk Management for Large Banks, ABA (Feb. 14, 2022) (“there is an absence of robust market data related to climate-related financial risk”).
5 See our Legal Update on these international efforts: https://www.mayerbrown.com/en/perspectives-events/publications/2022/04/ngfs-issues-request-for-information-on-climate-data-directory.