H.R. 2823 — Climate Change Financial Risk Act of 2025

This section expresses the sense of Congress that (1) 2024 was the warmest year on record globally and the first year average temperatures exceeded 1.5 degrees Celsius above pre-industrial levels, with trends likely surpassing that threshold long-term between 2030 and 2050; (2) climate change has increased extreme weather events, including those costing the U.S. over $1 billion each (adjusted for inflation) and totaling over $2.915 trillion since 1980; (3) physical and transition risks from climate change threaten the U.S. economy, financial stability, and sectors such as energy, agriculture, and infrastructure; (4) financial institutions must assess and incorporate these risks into management practices using scenario analysis; and (5) the Board of Governors should enhance stress tests—which currently exclude climate risks—and prudential standards under 12 U.S.C. 5365 to address climate-related systemic threats to safety, soundness, and financial stability.

This section establishes definitions for terms used in the Act, including (1) "bank holding company" and "nonbank financial company," with meanings given in section 102(a) of the Financial Stability Act of 2010 (12 U.S.C. 5311(a)); (2) "climate science leads," meaning specified federal officials and representatives such as the NOAA Administrator, EPA Administrator, and Secretary of Energy; (3) "covered entity," meaning a nonbank financial company or bank holding company with at least $250 billion in total consolidated assets, or one with at least $100 billion in assets for which the Board of Governors determines application of enhanced stress testing under section 165(i)(1)(C) of the Financial Stability Act of 2010 (12 U.S.C. 5365(i)(1)(C)), as added by section 6, is appropriate to address financial stability risks or promote safety and soundness; (4) "physical risks," meaning financial risks to assets, operations, or value chains from climate-related effects such as increased temperatures, extreme weather, flooding, sea level rise, and wildfires; (5) "surveyed entity," meaning a supervised bank holding company, nonbank financial company, or other entity with at least $10 billion in total consolidated assets that is not a covered entity; (6) "transition risks," meaning financial risks from climate change mitigation and adaptation efforts, including costs from policies, technologies, markets, litigation, and asset stranding; (7) "value chain," meaning the full lifecycle of a product or service, including sourcing, production, and disposal; and (8) other terms such as "Board of Governors" and "Technical Development Group."

This section establishes a Climate Risk Scenario Technical Development Group as an advisory body to the Board of Governors of the Federal Reserve System. The group consists of 10 members—(1) 5 climate scientists with demonstrated expertise in climate modeling, risk assessment, or related fields; and (2) 5 economists with expertise in the U.S. financial system or climate-related financial risks—selected after consultation with climate science leads. The group must (1) recommend development and updates to climate risk scenarios under section 5; (2) assess financial and economic risks from those scenarios; (3) publicly release its final work product and supporting information; (4) provide technical assistance to covered entities (i.e., financial institutions subject to Federal Reserve supervision) in evaluating physical risks (i.e., from climate events) or transition risks (i.e., from policy shifts to low-carbon economies); and (5) offer public resources for non-covered entities to assess such risks. Members serve without compensation, and the group is exempt from the Federal Advisory Committee Act (chapter 10 of title 5, U.S. Code).

This section directs the Board of Governors of the Federal Reserve, in coordination with the climate science leads and considering recommendations of the Technical Development Group, to develop three separate climate change risk scenarios not later than one year after enactment: (1) one assuming an average global temperature increase of 1.5 degrees Celsius above pre-industrial levels; (2) one assuming a 2 degrees Celsius increase; and (3) one assuming the likely and very likely average increase expected based on implemented national climate policies and actions as of the development date (excluding unimplemented commitments). In developing and updating the scenarios, the Board must consider international banking supervisors' analytical tools and best practices for consistent, comparable, data-driven scenarios and must allow the Technical Development Group to recommend updates to temperature assumptions if they are no longer scientifically valid. The scenarios must account for physical risks and transition risks that may disrupt global business operations, including (1) disruptions to sourcing of materials, production, transportation, and disposal of products and services; (2) changes in availability and prices of raw materials and inputs; (3) changes in agricultural production and food security; (4) direct damages to fixed assets; (5) increases in costs from insured or uninsured losses; (6) changes in asset values; (7) impacts on aggregate demand, labor productivity, asset liquidity, and credit availability; (8) mass migration and increases in disease and mortality rates; (9) international conflict affecting global economic activity and output; and (10) other relevant microeconomic or macroeconomic conditions.

This section establishes biennial climate risk stress tests for covered entities (as defined in the Climate Change Financial Risk Act of 2025, i.e., certain nonbank financial companies supervised by the Board of Governors and bank holding companies with at least $250 billion in total consolidated assets) and exempts such entities from certain existing stress test requirements during these tests. (1) The Board of Governors, in coordination with primary financial regulators and climate science leads (as defined in that Act), must evaluate each covered entity's capital adequacy to absorb losses under adverse climate change risk scenarios developed pursuant to section 5 of that Act. (2) For the first three tests, covered entities face no adverse consequences, the Board must publicly release a summary within 60 days, and submit results to the Senate Banking Committee and House Financial Services Committee. (3) Beginning with the second test, covered entities must submit a climate risk resolution plan—including a climate-specific capital policy and targets to address vulnerabilities—prior to testing; the Board may object to such plans if inadequate to maintain minimum capital ratios under test conditions, unreasonable, based on flawed analysis, or unsafe/unsound (including failure to provide fair services to vulnerable communities), in which case the entity is barred from capital distributions (except issuances counting toward regulatory capital).

This section directs the Board of Governors of the Federal Reserve System (Fed), in consultation with the Comptroller of the Currency and the Federal Deposit Insurance Corporation, to develop a survey assessing (1) surveyed entities' ability to withstand climate risk scenarios developed under section 5, (2) surveyed entities with large concentrations of business activities in geographical areas or industries significantly exposed to short- and long-term climate change impacts, and (3) those entities' planned adaptations to business models and capital planning in response to such risks. The Fed must administer the survey initially no later than one year after completion of the first climate scenario analysis under new 12 U.S.C. 5365(i)(1)(C) (added by section 6) and release a public aggregate report analyzing results and planned actions' plausibility and effectiveness no later than 18 months after survey completion; subsequent biennial administrations must occur no later than two years after each prior report, with reports due 180 days after completion. Survey reports must not identify individual entities, and survey participation does not preclude independent enforcement actions discovered through examinations.