On Earth Day, Schatz, Casten Introduce Legislation To Address Costs, Financial Risks Of Climate Change

WASHINGTON – U.S. Senator Brian Schatz (D-Hawai‘i) and U.S. Representative Sean Casten (D-Ill.) introduced the Climate Change Financial Risk Act, legislation that directs the Federal Reserve to conduct stress tests on large financial institutions to measure their resilience to climate-related financial risks.

“Risk is risk—we should not be treating some risks different from others just because they’re hard to quantify. Federal regulators are legally obligated to ensure a stable and efficient financial system, and that means reducing the risk of a climate-driven financial crisis,” said Senator Schatz. “Instead of taking steps to reduce the risks facing communities across the country from increasingly frequent and severe extreme weather and disasters—including significantly higher costs for homeowners insurance—the Trump administration is trying to roll back our progress in the climate fight and gut the programs that will make us safer.”

“Climate change poses a grave and imminent threat to the stability of our financial system. It is essential that our regulators establish parameters so that our financial institutions adequately prepare for and respond to these risks, and that they do so before the next extreme weather crisis strikes,” said Representative Casten. “Our bill will move us toward safeguarding our financial systems—from short-term climate impacts, such as direct uninsured losses from wildfires, hurricanes, and flooding events, as well as from long-term global shifts to a net-zero economy, which may require a reshaping of a bank's lending and investment activities."

Climate change is increasing the frequency and severity of extreme weather events like floods and wildfires. It is also changing long-term climate patterns in ways that will ultimately affect every sector of our economy. Financial institutions face the risk of direct losses from severe weather events and fundamental changes like drought and sea level rise—for example, lower property values from increased flooding. They also face risks from market instability, an erosion of investor confidence, and changes in carbon-intensive asset values resulting from government policies and consumer preferences.

These risks to our financial system are critical for financial institutions to measure and manage, as recognized in the pilot climate scenario analysis exercise that the Federal Reserve conducted in 2023 and the Principles for Climate-Related Financial Risk Management for Large Financial Institutions published by agencies in 2023. The Office of the Comptroller of the Currency announced in March 2025 that it was withdrawing from its participation in these principles. The Climate Change Financial Risk Act will make sure that financial institutions manage climate risks with stress tests that quantify and measure their resilience.

The Climate Change Financial Risk Act would require the Federal Reserve to create climate change scenarios for financial stress tests, with input from federal scientific agencies and an advisory group of climate scientists and climate economists. The Federal Reserve would then conduct stress tests every two years on the largest financial institutions. The biennial tests will require each covered institution to create and update a resolution plan, which will describe how the institution plans to evolve its capital planning, balance sheet and off-balance sheet exposures, and other business operations to respond to the most recent test results. Federal Reserve objections to a resolution plan would limit the institution’s ability to proceed with capital distributions until it improves its plan. The Federal Reserve will also partner with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to design a survey to assess the ability of a broader set of financial institutions to withstand climate risks.

Schatz’s legislation is cosponsored by U.S. Senators Elizabeth Warren (D-Mass.), Jeff Merkley (D-Ore.), Chris Van Hollen (D-Md.), Sheldon Whitehouse (D-R.I.), Patty Murray (D-Wash.), Martin Heinrich (D-N.M.), and Cory Booker (D-N.J.). The House companion legislation, led by Casten, is cosponsored by U.S. Representatives Stephen Lynch (D-Mass.), Emanuel Cleaver (D-Mo.), Jared Huffman (D-Calif.), Kevin Mullin (D-Calif.), Sarah Elfreth (D-Md.), and Salud Carbajal (D-Calif.).

“Those of us in the West are already experiencing the cost of climate inaction firsthand – from higher home insurance rates and utility bills for hardworking families to lower profits for producers. As the impacts of climate change intensify, we need to do everything we can to make our local economies more resilient for families, workers, and small businesses,” said Senator Heinrich. “This Earth Day, I’m proud to introduce the Climate Change Financial Risk Act with Senator Schatz to protect New Mexicans from the costly consequences of worsening climate change by strengthening the ability of our financial institutions to withstand extreme weather events like prolonged droughts and wildfires, which can trigger market instability and shake investor confidence."

“Trump's Dirty Energy First strategy is fanning the flames of climate chaos, and it’s essential to understand the risk that poses to our major financial institutions," said Senator Merkley. “We must not ignore the danger climate change poses to the economic security of hardworking Americans.”

The Climate Change Financial Risk Act is supported by League of Conservation Voters, Ceres, the Sierra Club, Public Citizen, and Americans for Financial Reform.

“US regulators must get back in the business of managing the systemic financial risks posed by increasing floods, fires, and storms,” said Steven M. Rothstein, Managing Director of the Accelerator for Sustainable Capital Markets, Ceres. "We commend Senator Schatz and Representative Casten for reintroducing this legislation and laying out a clear role for the Federal Reserve Board to address climate-related financial risks. This legislation will provide the clarity and analysis needed to ensure the financial industry makes informed decisions that protect individual institutions from climate-related shocks and insulate the financial system from widespread loss."

“As financial regulators retreat under political pressure, this bill represents a much-needed step to ensure our financial system is better prepared for the growing risks of climate change. Investors need regulators to provide clear, forward-looking assessments of systemic risk — and to ensure that financial institutions aren’t throwing more fuel on the fire of the climate crisis. With climate disasters escalating and financial consequences mounting, leaders at all levels of government must act to build a more stable and sustainable financial system. We applaud Sen. Schatz and Rep. Casten for their continued leadership to make that happen,” said Ben Cushing, Sustainable Finance Campaign Director, the Sierra Club.

The text of the bill is available here.

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