Concurring Statement of Commissioner Summer K. Mersinger Regarding Request for Information on Climate-Related Financial Risk
June 02, 2022
For the purpose of engaging the public through this Request for Information (RFI), I concur because I will always support efforts to engage market participants, industry, and the general public in the policy-making process at the Commodity Futures Trading Commission (CFTC or Commission). While other agencies may take liberties with process in order to impose a “government-knows-best” approach, traditionally, the CFTC has not been that agency.
However, I do not want my concurrence to be mistaken for support of the substance of this RFI or all the questions being asked. I have strong concerns with the discussion and several of the questions included in the RFI that extend beyond the scope of our statutory jurisdiction. Asking these questions causes confusion as to the role that Congress has tasked the CFTC to perform in our governing statute, the Commodity Exchange Act (CEA). Clarity about our statutory jurisdiction is foundational to our ability to successfully achieve the mission that Congress has set for the CFTC in the CEA.
Reading the RFI, I was struck by the lack of concern or interest in legacy agriculture contracts and futures markets. Growing up, I watched drought, flooding, and violent weather destroy our livelihood in a matter of hours. I remember many mornings riding in my Dad’s truck, surveying what was left of our corn fields after a hail storm, or seeing the burnt spikes of the wheat that turned too soon because of extreme heat and lack of rain. The financial risk of climate and extreme weather is and has always been real, and our farmers and ranchers have been using legacy agriculture contracts and the futures markets to hedge those risks since the inception of those markets.
With this in mind, where are the questions in this RFI about financial risk due to climate change on our legacy agriculture contracts and futures markets? What is not asked in this RFI is just as important as what is asked. Not one question focuses on the agricultural sector. Is this an unintentional oversight or a strategic decision to cut agriculture from this conversation? Unfortunately, the RFI gives no reason for leaving agriculture out of the discussion when our agency’s roots and history are embedded in the agriculture community.
With respect to what is asked in the RFI, information is only useful if it can further our efforts to achieve our mission, which is why I find it concerning that we are requesting information that we cannot use and not asking questions on well-functioning markets where climate risk is already hedged. I can only conclude that the RFI reflects either inadvertent “mission creep” at best, or a power grab to expand the CFTC’s authority at worst.
Specific instances in which the RFI extends beyond the CFTC’s jurisdictional boundaries under the CEA include, but are not limited to, the following:
- The first sentence of Section II (which sets out the requests for information) states that the Commission “is seeking public feedback on all aspects of climate-related financial risk as it may pertain to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants.” Let me be crystal clear: The CFTC does not regulate commodities markets. The CEA provides the CFTC with statutory authority to regulate only derivatives markets, not commodities markets. Requesting feedback on all aspects of climate-related financial risk as it may pertain to underlying commodities markets covers a huge expanse of territory that is far outside the CFTC’s statutory authority over derivatives markets under the CEA.
- Request no. 3 asks what steps the Commission should consider, in addition to publishing information in its possession, “to make climate-related data more available to registrants, registered entities, other market participants, and/or the public (as appropriate and subject to any applicable data confidentiality requirements) in order to help understand and/or manage climate-related financial risk?” This suggests that the CFTC has statutory authority under the CEA to order, as it deems appropriate, any individual or entity to make data available for the benefit of registrants, registered entities, other market participants, and/or the public. It does not.
- Request no. 18 asks what derivatives products “are currently used to manage climate-related financial risk, facilitate price discovery for climate-related financial risk, and/or allocate capital to climate-benefiting projects?” In Section 3(a) of the CEA, Congress found that the derivatives transactions regulated by the CFTC provide “a means for managing and assuming price risks [and] discovering prices . . .” In Section 3(b) of the CEA, Congress then identified the CEA’s purposes as including deterring and preventing manipulation or other market disruptions; ensuring the financial integrity of transactions; avoiding systemic risk; protecting market participants from fraud, abusive sales practices, and misuses of customer assets; and promoting responsible innovation and fair competition. Nowhere in the CEA did Congress suggest that it is a purpose of the CEA, or the mission of the CFTC, to allocate capital—whether to climate-benefiting projects or otherwise.
- Request no. 24 asks whether the Commission should consider “creating some form of registration framework for any market participants within the voluntary carbon markets to enhance the integrity of the voluntary carbon markets?” The CFTC does not have statutory authority under the CEA to create a registration framework for market participants within voluntary carbon markets unless they engage in activities relating to derivatives.
- Request no. 25 asks whether “digital assets and/or distributed ledger technology offer climate-related financial risk mitigating benefits?” The CFTC does not have statutory authority under the CEA to regulate digital assets or distributed ledger technology except to the extent they involve derivatives.
- Request no. 27 asks whether there are “any steps that the Commission should consider when assessing how the impact of climate change on the derivatives markets and/or underlying commodities markets, or proposed policy solutions to address such impact, may affect financially vulnerable populations?” The CFTC does not have authority under the CEA to take any regulatory steps with respect to underlying commodities markets, regardless of whether they affect financially vulnerable populations.
- Request no. 30 asks what literature and research the Commission should consult “related to climate risks as applicable to the derivatives markets, underlying commodities markets, registrants, registered entities, or other derivatives market participants?” As noted above, Congress has not provided the CFTC with regulatory authority in the CEA with respect to climate risks applicable to underlying commodities markets.
I have no opposition to requesting the information we need to consider the implications of climate-related financial risk in fulfilling our mission under the CEA. But I am concerned that requesting information on matters over which the CFTC has no statutory authority and ignoring opportunities to ask questions of market participants already using our markets to hedge their climate exposure will not further the purported goal of this RFI.