For the first time in its 11-year history, a top U.S. financial regulatory body has formally recognized climate change as an “emerging threat” to the nation’s economic stability. 

In a 133-page report released Thursday, the Financial Stability Oversight Council, or FSOC, noted that climate-fueled disasters are “increasing and already imposing substantial economic costs.” These costs are “expected to increase further” and climate change “will likely be a source of shocks to the financial system in the years ahead,” the report added. It highlighted that the effects of global warming will be most acutely felt by communities of color and financially vulnerable populations. 

“It’s challenging to predict the future impacts of climate change, but we know that climate change has already started causing an array of economic harms,” said Treasury Secretary Janet Yellen, who is also the chairperson of FSOC. “Failure to address climate-related financial risks will only allow them to grow larger.”

After the 2008 financial crash left the U.S. economy in shambles, lawmakers recognized that regulators were uncoordinated and too narrowly focused on threats to individual institutions. To better assess systemic risks to the economy, Congress established FSOC in 2010. 

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Composed of 15 members, FSOC is headed by the chair of the Treasury Department as well as the heads of a slew of powerful financial regulatory agencies, including the Securities and Exchange Commission, Commodity Futures Trading Commission, and Federal Housing Finance Agency. While it doesn’t have direct regulatory authority and cannot force agencies to comply with its recommendations, it plays a crucial role in identifying and heading off major financial crises.

With Thursday’s report, the Council has four broad recommendations for regulatory agencies: invest in staff and resources to analyze climate threats, fill in gaps in climate data, improve public disclosure of climate-related risks, and conduct scenario analyses to identify risks that can threaten the stability of the financial system. The report also announces that the Council plans to create two committees — an external panel to advise the council and a committee composed of Council staff — to coordinate work on climate risks across agencies. 

During a press briefing, senior Treasury officials told reporters that the recommendations consisted of two key building blocks: data and analysis. They characterized the report as a significant first step, given that it represents a consensus from the entire U.S. financial community. They said the report was a precursor to further action by regulatory agencies in the future. 

The report’s recommendations come as no surprise. Indeed, many of the regulatory agencies that serve on the Council have already been collecting information and considering rules to better protect the financial sector from climate risks. The Securities and Exchange Commission has been targeting companies making dubious claims about their sustainability. The Federal Housing Finance Agency has been collecting information on climate risks to the mortgage industry. And the Commodity Futures Trading Commission has established a “climate risk unit.” 

Steven Rothstein, a managing director at the sustainability nonprofit Ceres, said that agencies must begin disclosing how they plan to follow through on the report’s recommendations. “With a very small window to prevent the next climate disaster, each agency must now provide specific timelines when they plan to put in place measures to protect the safety and soundness of our financial system, our institutions, our savings and our communities,” he said.

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While some initial steps have been taken, Yellen underscored that much of the work lies ahead. “It’s important to note that this report is not exhaustive, nor is it the final word from this council on this urgent priority,” she said. 

“Our most financially stable future is our most environmentally sustainable future — one where we have transitioned to a low-carbon economy,” Yellen added.