S. 1471 — Climate Change Financial Risk Act of 2025

This section expresses the sense of Congress that climate change poses physical and transition risks to U.S. financial stability—including increased extreme weather events costing over $2.915 trillion since 1980, disruptions to energy and supply chains, and potential stranded fossil fuel assets—and that the Board of Governors of the Federal Reserve System should incorporate these risks into stress tests, scenario analyses, and prudential standards for large financial institutions under 12 U.S.C. 5365.

This section establishes definitions for purposes of the Act, including (1) "covered entity" as 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 if the Board of Governors determines application of enhanced prudential standards under section 165(i)(1)(C) of the Financial Stability Act of 2010 (12 U.S.C. 5365(i)(1)(C)) is appropriate to address financial stability risks or promote safety and soundness; (2) "surveyed entity" as 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; (3) "physical risks" as financial risks from climate-related physical effects (e.g., extreme weather, sea level rise, wildfires); (4) "transition risks" as financial risks from climate mitigation and adaptation efforts (e.g., policies, new technologies, asset stranding); (5) "climate science leads" as specified federal officials (e.g., NOAA Administrator, EPA Administrator); and (6) other terms such as "bank holding company," "Board of Governors," "nonbank financial company," "Technical Development Group," and "value chain."

This section establishes a Climate Risk Scenario Technical Development Group as a technical advisory body to the Board of Governors of the Federal Reserve System. The group consists of 10 members—5 climate scientists with peer-reviewed expertise in climate modeling or risk assessment, and 5 economists expert in the U.S. financial system or climate-related financial risks—selected after consultation with climate science leads; members serve without pay and are exempt from the Federal Advisory Committee Act. 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., regulated financial institutions) on physical risks (e.g., extreme weather) or transition risks (e.g., policy shifts to low-carbon economy); and (5) offer public resources for non-covered entities to assess such risks.

This section directs the Board of Governors of the Federal Reserve System, in coordination with the climate science leads and considering recommendations of the Technical Development Group, to develop three climate change risk scenarios not later than one year after the date of enactment, as follows: (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 increases expected, based on implemented (but not merely committed) national climate policies and actions as of the development date. The Board must consider international banking supervisors' analytical tools for consistent scenarios and allow the Technical Development Group to recommend updates to the temperature assumptions if no longer scientifically valid. In developing and updating the scenarios, the Board must account for physical and transition risks disrupting global business operations, including (1) disruptions to sourcing, production, transportation, and disposal; (2) changes in raw material availability and prices; (3) changes in agricultural production and food security; (4) direct damages to fixed assets; (5) increased 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, disease, and mortality increases; (9) international conflict affecting economic activity; and (10) other relevant microeconomic or macroeconomic conditions.

This section requires the Board of Governors of the Federal Reserve System, in coordination with primary financial regulatory agencies and climate science leads (as defined in sec. 3 of the Climate Change Financial Risk Act of 2025), to conduct biennial stress tests evaluating whether covered entities (as defined therein) maintain adequate consolidated capital to absorb losses under adverse climate change risk scenarios developed under sec. 5 of that Act. For the first three tests, covered entities face no adverse consequences, and the Board must publicly release a summary within 60 days and submit results to the Senate Banking Committee and House Financial Services Committee. Beginning with the fourth test, each covered entity must submit a prior climate risk resolution plan—including a capital policy (as defined in 12 CFR 225.8(d)(7)) and quantitative/qualitative targets to remedy identified vulnerabilities—and the Board may object to such plans if they fail to credibly maintain minimum regulatory capital ratios under the adverse scenarios, are unreasonable (including harm to vulnerable communities), rely on flawed methodologies, or are unsafe/unsound practices. (Thus, objected-to covered entities are barred from capital distributions, except those from issuing regulatory capital instruments.) The amendment excepts these biennial tests from certain existing annual stress test requirements.

This section requires the Board of Governors of the Federal Reserve System (Federal Reserve), in consultation with the Office of 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 of this Act; (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 Federal Reserve must administer the survey initially not later than one year after completion of the first climate stress test analysis required under new 12 U.S.C. 5365(i)(1)(C) (as added by section 6), with subsequent administrations biennially beginning two years after release of the initial survey report; release a public report on initial survey results (including an aggregate analysis of planned actions' plausibility and effectiveness) not later than 18 months after survey completion, and subsequent reports not later than 180 days after completion; anonymize individual entities in all reports; and retain authority for independent enforcement actions discovered outside the survey process.