(Remarks Prepared for Delivery)

Good afternoon.  I want to thank the Chicago Bar Association for the warm welcome of me as a new CFTC Commissioner.  I only wish I could join you in person.  I started my law career in Chicago as a young associate at Jenner & Block with a view of the river from my office.  I instantly fell in love with the city, including Gold Coast hot dogs, summer concerts at Ravinia, and baseball games.  Although I won’t tell you which team because half of you will likely be upset.

Please let me give the standard disclaimer.  My views are my own and do not reflect the views of the Commission or my fellow Commissioners.  I am excited that you are focusing this conference on one of my priorities, which is mitigating climate financial risk and the opportunities to promote responsible innovation for ESG products in derivatives markets.  I want to speak about that, how I am thinking about that, and the role of the CFTC.  However, let me first talk about what the CFTC is doing relevant to geopolitical events and our markets.

The Impact of Geopolitical Events on Commodity and Derivatives Markets

When I testified before Congress at my confirmation hearing, I said that my highest priority would be to ensure that derivatives markets are working well, and that we identify and mitigate risk.  As you know, commodity markets have been under considerable strain, first with the pandemic, and supply chain issues, and then in the last few months the impact of geopolitical events surrounding Russia’s invasion of Ukraine.

The CFTC is actively monitoring commodity markets so that we can ensure that derivatives markets are functioning well.  Our economists provide the Commissioners daily information on the markets, along with color.  CFTC staff are talking to counterparts at other agencies, market participants, and in some cases, conducting deep dives into particular market activity.  Commissioners are involved in dialogue with the economists and other staff so that we have a deep understanding of market activity and the reason for that activity.

As we see the significant increases in oil prices, we are spending time understanding the differences in U.S. oil which is light and sweet, and the heavier crude used by Europe.  We have developed an understanding of the recent history of oil production in the United States, including challenges in production brought on by the pandemic.  Substantial increases in natural gas prices is a key focus and something that we are monitoring.  Wheat is a critical commodity that we are also focused on in particular given the invasion of Ukraine, which is called the bread basket of Europe.

I can tell you that derivatives markets continue to be resilient.  Our markets are providing the risk management and price discovery that our market participants need.  This is particularly important at this point in time when commodity markets are facing significant challenges.

These markets are global. We are actively talking with international regulators.  Last week, I was in London, meeting with United Kingdom financial regulators to discuss commodity and derivatives markets.  This week, I met virtually with European financial regulators to have similar discussions.

Climate Financial Risk and Responsible Innovation in ESG

The CFTC is also following the potential impact of recent substantial drought on crops.  That brings me to talk about climate risk and ESG opportunities.  Derivatives markets have a long history of helping market participants manage risk, and the financial risks posed by climate change are directly in front of us.  Climate change presents both physical risk of extreme weather and disasters, as well as transitional risk as market participants, corporations and others move towards net zero targets.

Managing Physical Climate Risk

The CFTC’s mission includes promoting the resilience of our derivatives markets.  That was true related to the pandemic, and it is also true related to the physical risks of climate change.  For many years, farmers, ranchers, and other end users have been using derivatives markets to manage risk from climate events.  However, wildfires, flooding, droughts, and other disasters have increased in number and severity, causing devastating losses.  The USDA reported 20 climate disasters in 2021 that each caused $1 billion in losses.  These in addition to climate disasters that caused significant losses under $1 billion, could impact derivatives markets.  Our agricultural community understands that climate risk is real, and many of them have been engaged in sustainability efforts, some of them for many years.

Climate-related financial risk presents a unique set of risk management challenges.  First, historical patterns may not predict future events, leading to uncertainty.  Second, climate events may put strain on particular states or regions of the country, causing sub-systemic shocks.  Assessing risk will require forward-looking exercises, as well as assessing interconnections to understand the ripple effects of sub-systemic shocks.

Transition Risk and Market Opportunities

The Paris Accord and recent net zero commitments by a substantial number of companies have accelerated the discussions about how derivatives markets can help mitigate transition risk.  Many companies will be challenged to meet net zero targets solely through the reduction of carbon emissions.  There has been a huge surge in demand for voluntary carbon markets and other products that would complement a reduction in emissions to help companies meet their targets.

U.S. derivatives markets present an opportunity for risk management as companies transition to their net zero commitments.  There are already more than 200 listed sustainability products on CFTC-regulated exchanges.  However, the size of listed environmental derivatives markets remains small, in comparison to over the counter carbon products, which by one count was more than $1 billion last year.

The opportunity to scale up the number of high-quality carbon products that are listed on exchanges could be a game changer in helping drive up supply to meet the surge in demand.  Voluntary carbon markets face challenges in establishing pricing, and derivatives exchanges have always played a vital role in price discovery.  The CFTC can facilitate the exchanges’ introduction of new environmental products.

As many of you know, Chairman Behnam has been leading the CFTC’s efforts for a number of years related to climate risk.  He sponsored the Market Risk Advisory Committee report that recognized that climate risk presents financial risk.  He also formed the Climate Risk Unit within the CFTC.  I agree with Chairman Behnam when he said recently that, “the CFTC is uniquely poised as the regulator at the forefront of climate-related risk management as firms and individuals will increasingly turn to derivatives markets to mitigate climate change-induced physical and transition risk and seek price discovery for new and evolving risk management products.”[1]

The CFTC’s future actions will be part of a whole of government approach in the Biden Administration.  President Biden issued an Executive Order on managing climate risk with a roadmap to build an economy that is resilient to climate change impacts.  The Executive Order charges the Financial Stability Oversight Council to assess and make recommendations to enhance the financial system’s ability to address climate-related financial risk.  FSOC issued recommendations for member agencies which includes the CFTC.  Recommendations include, for example, building capacity to address climate-related financial risks, getting climate-related data, and assessing and mitigating climate-related risks to financial stability.

The CFTC is now in that formal information and data gathering phase.  On June 2, 2022, we released a Request for Information, seeking public input to understand climate risk in detail, how to assess that risk, and the steps market participants are taking to reduce risk.  We also asked questions about the appropriate role of the CFTC in the area of climate and voluntary carbon markets.

Two weeks ago, the CFTC held a public roundtable on voluntary carbon markets, where we invited views from non-profit organizations, carbon credit registries, the supply side, and the demand side.  Voluntary carbon markets face challenges in scaling up.  If I can sum up the challenges we heard from the demand side – those seeking to invest in carbon credits—it came down to a lack of trust and transparency.  There are concerns about a lack of standards and taxonomy, a lack of transparency with pricing, a lack of transparency into projects that form the basis of carbon credits, and integrity-related issues like double counting and the need for independent verification.  The lack of consistent and comparable data can impact trust in voluntary carbon markets, and can lead to concerns about greenwashing.

We also heard from the supply side, including our agricultural community who face challenging circumstances right now.  They are facing significantly increased fuel costs as well as fertilizer costs given geopolitical events surrounding Russia’s invasion of Ukraine.  The agricultural community may not have the resources to make certain sustainable investments that could become carbon credits.

Regulators are at their best with public input.  We want to hear from all of you.  I want to hear especially about how we at the CFTC can promote responsible innovation and market driven solutions.  At the roundtable, we heard several participants say that the CFTC could help with standardization and taxonomy, as well as curbing greenwashing.  As these are global markets, we heard requests for international harmonization of standards.  When I was in London meeting with UK regulators, some of our exchanges, and market participants, there was a lot of discussion about ESG opportunities.

As we look to bring trust and transparency to this market, that could include enforcement actions for greenwashing.  As someone with a career in law enforcement, I am talking with our Division of Enforcement about greenwashing cases.

Finally, I will say that one purpose of the Commodity Exchange Act is to promote responsible innovation.  To me that applies as equally in the ESG space as it does to technology.

Thank you and I hope that you enjoy your conference.

Good morning and welcome to the CFTC.  I want to thank Chairman Behnam for his leadership on climate issues. I also thank the staff for organizing this event, and thank the participants.

As expressed in President Biden’s Executive Order on Climate-Related Financial Risk, a whole-of-government approach will lead to greater understanding of the financial risks that climate change poses, and to the development of effective strategies to mitigate those risks.  The CFTC should be at the forefront of financial regulatory efforts to understand, and identify actions to mitigate, climate-related financial risks that impact CFTC-regulated markets.

When I testified at my confirmation hearing, I said that “As our markets evolve with emerging issues like climate, regulators must be thoughtful and deliberate.  It is important to learn the facts, listen to all sides, understand consequences of any action, and collaborate with other regulators.  Being thoughtful helps keep markets resilient, transparent, and free of fraud and manipulation, while promoting responsible innovation.”

Today is an opportunity to learn, listen and understand.  First, the Commission can benefit significantly in understanding physical climate risk directly from those in our markets who bear the risk.  Second, the United States has an opportunity to be a leader in emerging voluntary carbon/sustainability markets, and public input can help realize that opportunity.

As a market regulator, the CFTC’s mission is to promote the resilience, vibrancy and integrity of our derivatives markets. Commodities markets have been impacted by significant climate disasters such as wildfires, hurricanes, flooding, and other disaster events that have caused devastating financial losses to farmers, ranchers, and producers—losses that impact our derivatives markets.  In determining how to promote the resilience and vibrancy of these markets, it is appropriate for the Commission to seek data and input on climate-related physical risk from those in our markets who bear the brunt of that risk as well as the public.  The Commission should be thoughtful and deliberate in any future action, and consider potential consequences on farmers, ranchers, and producers.

Additionally, the Commission’s role extends to promoting responsible innovation, which includes the evolution of climate/sustainability products in our markets.  There is a growing global market demand for derivatives products that could serve as a hedge against both physical risks of climate change as well as transition risks as companies move toward a net zero environment.  With a growing number of companies making net zero pledges, there is notable interest in carbon offset or sustainability products.  However, concerns about transparency, credibility, and greenwashing may hamper the integrity and growth of these markets.  I look forward to public input on whether there are customer protections, guardrails or standards that the Commission should consider as part of its mission to promote market integrity and transparency and to keep our markets free of fraud and manipulation.

I am interested in hearing what special or unique considerations, opportunities or challenges these markets present.  I will be particularly interested in hearing about whether there are customer protections, standards or guardrails needed in order to achieve transparency, credibility and integrity.  I am interested in thoughts on the appropriate role of the CFTC to promote responsible innovation in these markets.  Finally, as the sponsor of the Technology Advisory Committee, I am interested in learning about how technology can provide an opportunity to help bring integrity that could scale up these markets.

I look forward to the discussion, and appreciate you taking the time to share your insight.

According to data gathered by the National Oceanic and Atmospheric Administration’s (NOAA’s) National Centers for Environmental Information, since 1980, the United States has sustained more than three hundred weather and climate disasters, including droughts, floods, severe storms, cyclones, wildfires, and winter storm events that, in the aggregate, led to costs or damage exceeding more than $1 billion.[1] Notwithstanding our long history of navigating severe-weather related events, the increasing frequency, severity, and intensity as well as the rising costs of these events raise important questions and remarkable concerns.

In May of 2021, President Biden issued an Executive Order on Climate-Related Financial Risk[2] directing the Secretary of the Treasury to engage with Financial Stability Oversight Council (FSOC) members to consider issuing a report on member agencies’ efforts to consider climate-related financial risk. In response to the Executive Order, the FSOC issued the Report on Climate-Related Financial Risk (Report).[3] The Report contains thirty-five recommendations aimed to:

1. Build capacity and expand efforts to address climate-related financial risks;
2. Fill climate-related data and methodological gaps;
3. Enhance public climate-related disclosures; and
4. Assess and mitigate climate-related risks that could threaten the stability of the financial system.   

Today’s Request for Information on Climate-Related Financial Risk (RFI) reflects the CFTC’s established leadership in response to requests to better understand the role of voluntary carbon markets as well as the agency’s commitment to ensuring a comprehensive effort to understand how our markets, market participants, including large and small agricultural and energy sector commercial and end users may be impacted by physical risks or acute climate-related events and transition risks or the stresses that result from shifts in policies, regulations, customer preferences, and technology.  Consistent with the CFTC’s mandate to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation, the RFI seeks comments on how climate-related financial risk may affect “registered entities, registrants, or other market participants, and the soundness of the derivatives markets,” including an assessment of “how registrants and registered entities may need to adapt their risk management frameworks—including, but not limited to, margin models, scenario analysis, stress-testing, collateral haircuts, portfolio management strategies, counterparty and third-party service provider risk assessments, and enterprise risk management programs—as well as how market participants may need to adapt their dealing, trading, and advisory businesses in the derivatives markets.”

These inquiries are well within the ambit of the CFTC’s statutory authority and continue a long-established tradition of engaging in thoughtful dialogue with our market participants and diverse stakeholders in order to understand their concerns related to emerging and evolving risk management oversight.  Among many complimentary and comprehensive efforts, careful evaluation of carbon markets may reveal a useful path for mitigating climate-related financial risk.  This RFI is an important step toward learning from our market participants how these markets may help them to hedge and efficiently manage existing and evolving climate-related risk. Consequently, I support the Commission’s RFI on Climate-Related Financial Risk and I look forward to the public responses.

As expressed in President Biden’s Executive Order on Climate-Related Financial Risk, a whole-of-government approach will lead to greater understanding of the financial risks that climate change poses, and to the development of effective strategies to mitigate those risks.  The CFTC should be at the forefront of financial regulatory efforts to understand, and identify actions to mitigate, climate-related financial risks that impact CFTC-regulated markets.  This Request for Information reflects the Financial Stability Oversight Council’s recommendations for U.S. financial regulators, seeks climate-related data, and asks questions about the appropriate role of the CFTC in this emerging space.[1]

I support the Commission’s Request for Information because it seeks public input on both physical risks and transition risks related to climate issues that impact our markets.  First, the Commission can benefit significantly in understanding physical climate risk directly from those in our markets who bear the risk.  Second, the United States has an opportunity to be a leader in emerging voluntary carbon/sustainability markets, and public input can help realize that opportunity.

As a market regulator, the CFTC’s mission is to promote the resilience, vibrancy and integrity of our derivatives markets.  Commodities markets have been impacted by significant climate disasters such as wildfires, hurricanes, flooding, and other disaster events that have caused devastating financial losses to farmers, ranchers, and producers—losses that impact our derivatives markets. In determining how to promote the resilience and vibrancy of these markets, it is appropriate for the Commission to seek data and input on climate-related physical risk from those in our markets who bear the brunt of that risk as well as the public.  The Commission should be thoughtful and deliberate in any future action, and consider potential consequences on farmers, ranchers, and producers.

Additionally, the Commission’s role extends to promoting responsible innovation, which includes the evolution of climate/sustainability products in our markets.  There is a growing global market demand for derivatives products that could serve as a hedge against both physical risks of climate change as well as transition risks as companies move toward a net zero environment.  With a growing number of companies making net zero pledges, there is notable interest in carbon offset or sustainability products.  However, concerns about transparency, credibility, and greenwashing may hamper the integrity and growth of these markets.  I look forward to public input on whether there are customer protections, guardrails or standards that the Commission should consider as part of its mission to promote market integrity and transparency and to keep our markets free of fraud and manipulation.  The Commission has a critical role to play to ensure that our markets remain the strongest and safest in the world.

Introduction

Good morning and welcome to the Voluntary Carbon Markets Convening.  I want to thank Commissioners Johnson, Goldsmith Romero, Mersinger, and Pham for joining today’s meeting.  I also want to thank and acknowledge the members of the Climate Risk Unit (CRU), our distinguished keynote speakers, moderators, and panelists.  Finally, I want to extend my gratitude to David Gillers, the CFTC’s Chief of Staff and CRU Director, Abigail Knauff, a Special Counsel in my office and CRU Deputy, and all of the CRU staff for their work in initiating this Convening.

There has been an outpouring of interest since I announced the Convening last month.  I believe this interest is a testament to the strength of public-private partnerships aimed at determining how the derivatives markets can facilitate the transition to a net-zero economy.

Common Ground

There is now a common understanding that climate change presents an emerging and increasing threat to financial stability, and can cause sub-systemic shocks and wide-ranging ripple effects to the U.S. financial system and larger economy.  However, climate change also presents opportunities as we work to ensure decisive and cohesive leadership over the markets and institutions charged with monitoring and managing risk, capital, and asset allocation.  The derivatives markets overseen by the CFTC are used for hedging a range of risks in the traditional commodity as well as interest rate, foreign exchange, credit, and equity markets.  These markets also serve as powerful information resources for hedgers and investors alike when it comes to price discovery, market transparency, and facilitating the allocation of capital towards sustainable investments. Market participants from across all sectors, including the agricultural, industrial, and financial sectors will increasingly turn to the derivatives markets as they manage the impact of physical and transition risks.

The Path Forward

I am proud of my own efforts over the last several years in support of the Commission and industry efforts as former sponsor of the CFTC’s Market Risk Advisory Committee  (the MRAC) whose Climate Related Financial Market Risk Subcommittee released the 2020 report Managing Climate Risk in the U.S. Financial System[1].  And I would be remiss if I did not mention former Commissioner Bart Chilton, who exemplified the role policy makers have the potential to play, and the efforts of the Bank of England, the Network for Greening the Financial System (NGFS), the Financial Stability Board, IOSCO, among others, towards achieving sustainable finance and resilient markets.  At the heart of their efforts, and in the pages of the MRAC Subcommittee’s Climate Report, is the concept of partnerships.

The CFTC is uniquely poised as the regulator at the forefront of climate-related risk management as firms and individuals will increasingly turn to the derivatives markets to mitigate climate change-induced physical and transition risk and seek price discovery for new and evolving risk management products.  Recognizing the CFTC’s leadership and vigilance in overseeing these markets, I announced the creation of the internal Climate Risk Unit in March 2021 to thoughtfully leverage the agency’s resources and expertise to better understand the role of derivatives in pricing and mitigating climate-related risk, and support the orderly transition to a net zero economy through market-based initiatives.[2]

Comprised of economists, risk analysts, market analysts, and attorneys from across the CFTC, the CRU is primarily responsible for accelerating early CFTC engagement in support of industry-led and market-driven processes in the climate space.  For its part, the CRU is currently focused on a regulatory assessment of what CFTC registrants, registered entities, and other market participants can do to mitigate climate-related financial risk and explore opportunities for public-private partnerships between CFTC staff and market participants to identify opportunities in the commodities and derivatives markets to support the transition of risk to finance climate change solutions.

Request for Information

In addition to designing and executing today’s meeting, I am pleased to announce the CRU’s leadership in drafting a Request for Information (RFI) on climate-related market risk, coming out in the next week.  The RFI will seek 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 market participants.

The RFI will also seek responses on questions specific to data, scenario analysis and stress testing, risk management, disclosure, product innovation, voluntary carbon markets, digital assets, greenwashing, financially vulnerable communities, and public-private partnerships and engagement.  The Commission may use this information to issue new or amend existing guidance, interpretations, policy statements, and regulations, or take other potential Commission action.

I am incredibly proud of the efforts that have gone into the upcoming RFI and look forward to the public’s responses.  My intention is to focus on ensuring that America’s farmers, ranchers, manufacturers, commercial end-users, and investors are equipped to manage their risks from increasingly severe and frequent weather events as well as the transition to a net-zero, low-carbon economy.  The RFI seeks to ensure that we as regulators are informed, educated, and engaged.

Growth of the Voluntary Carbon Markets

The voluntary carbon markets are growing exponentially.  Last year, the voluntary carbon markets exceeded $1 billion in value for the first time.[3]  Some forecast that additional financing from carbon markets could exceed $1 trillion by 2050.[4]

In November 2021, the 26^th UN Climate Conference of the Parties (COP26) concluded in Glasgow with a new set of initiatives to advance the Paris Agreement’s goal of limiting global warming.  Among the key outcomes was an agreement on the so-called “Article 6 Rulebook” to facilitate international trading of emissions reductions.  Article 6 of the Paris Agreement had previously set out a framework for cooperative approaches to achieve national carbon reduction and removal targets, but the absence of an agreement on specific implementation guidelines rendered it inoperative.

The Article 6 Rulebook ushers in an exciting new era for international carbon markets.  Countries can trade offset credits to satisfy their nationally determined contribution (NDCs) under the Paris Agreement.  The agreements reached at COP26 address the “double-counting” issue by requiring that countries transferring credits abroad make a corresponding adjustment—an increase in their own national emissions tally.  Although Article 6 does not regulate voluntary carbon markets, this crediting mechanism, which requires emissions tally adjustments any time credits are transferred abroad, whether to other nations or private entities, will likely have a significant impact on the trading of offsets.

The private sector has demonstrated its leadership and ingenuity by initiating, among other efforts, the Taskforce on Scaling Voluntary Carbon Markets to accelerate the growth and adoption of voluntary markets.  Multiple carbon offset derivatives contracts are already listed on the CFTC’s regulated exchanges today and more are expected.  The CFTC must build its capacity to ensure the ongoing integrity of these markets, identify and pursue any potential fraud or other abusive practices in the underlying markets, and promote responsible innovation and fair competition.  In other words, we are now past the point of wondering whether our derivatives markets are implicated by the Voluntary Carbon Markets.  The answer very clearly is yes, and we as a regulator have an imperative to examine these markets to asses credibility and integrity.

A Convening for Credible Credits

Multiple private sector-led voluntary carbon markets initiatives are underway to address the integrity of the supply and demand for carbon offsets.  It’s critical that the voluntary carbon markets support high-quality, data-supported carbon offsets that meaningfully reduce or avoid carbon emissions.  It’s also critical that we acknowledge that carbon offsets are only one tool to mitigate emissions and should only be used when all other means have been exhausted to mitigate emissions.

There is enormous potential for companies in all sectors to meet sustainability goals and net zero commitments.  But emission reduction is not a one-size-fits all undertaking.  While carbon offsets may provide an efficient and cost-effective means to check that box and populate the balance sheet, if those offsets do not represent true abatement either because they lack integrity, or the underlying infrastructure lacks transparency, then VCMs may remain in a perpetual limbo akin to being stuck in a regulatory sandbox.

As I have said before, one of our goals is always to dedicate the resources we have towards raising risk management awareness and visibility within our markets and the broader economy so that we can identify where the holes are; where we need to be most vigilant in both our support and leadership as regulators.

Today’s Convening aims to provide a public forum for wide variety of market participants in the voluntary carbon markets to examine the issues related to the supply and demand for high quality carbon offsets with a focus on integrity, infrastructure, and credibility.

To reiterate, the CFTC is here as a market regulator to ensure, where appropriate, that VCMs grow in a responsible way, with appropriate supervision and necessary guidance and guardrails.  Indeed, our efforts today demonstrate a very intentional first step towards increasing U.S. participation in international cooperative efforts. As I’ve mentioned, as the derivatives regulator we have an imperative to understand how these markets operate.  And the purpose of today’s Convening, in addition to reaching a better understanding of the markets, is to pose the underlying question that really permeates every panel, and for which we are very eager to hear your input: what role should the CFTC play in these markets?

I have quoted this passage before: climate change manifests as multiple intersecting and uncertain future hazards, acting as a risk multiplier with other stressors that create new risks and alter existing ones.[5]  There are significant and large economic repercussions if the transition to a low carbon economy is not executed in a thoughtful, cohesive, and data driven manner.  The costs associated with both transition and physical risks of climate change depend on the trajectory chosen for reducing carbon emissions.  We are here today to further ensure that the right choices are made, and to take the steps necessary to understand and support, where appropriate, responsible innovation to tackle the climate challenge.

Again, I am honored and pleased to welcome all of you here today.

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:

1. 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.”[1]  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.
2. 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.
3. 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.[2]  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.
4. 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.
5. 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. 
6. 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. 
7. 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.

I respectfully concur with the publication of the Request for Information (RFI) on Climate-Related Financial Risk in the Federal Register because it is imperative that the public has an opportunity to provide input and share expertise.

In our work in this area, however, we must be mindful of our statutory mandate: oversight of the commodity derivatives markets.[1]  In particular, as the RFI recognizes, our markets are “affected with a national public interest” because they facilitate risk management and price discovery “through trading in liquid, fair and financially secure trading facilities.”[2]  Further, as the RFI also recognizes, the Commodity Exchange Act mandates that the Commission serve this public interest through our oversight of “a system of effective self-regulation of trading facilities, clearing systems, market participants and market professionals,” and by deterring and preventing price manipulation and other disruptions to market integrity, ensuring the financial integrity of transactions in our markets, avoiding systemic risk, protecting market participants from “fraudulent or other abusive sales practices and misuses of customer assets,” and promoting “responsible innovation and fair competition.”[3]  This statutory mandate bears repeating because it makes clear that the Commission is a market regulator over our markets and products, market infrastructure, market integrity, market conduct, market participants, and market professionals.

We are not, for instance, a prudential banking regulator like the Fed, OCC, or FDIC, nor are we a primarily disclosures-based market regulator like the SEC.  Keeping our focus on our markets, products, and purpose—keeping our eyes on the ball—will help us avoid the risk of diluting our limited resources and potentially straying from our core expertise and responsibilities into areas already tasked to others. 

As we do our work on climate-related financial risks within our statutory authority—such as by fostering the development of new products and markets to manage physical risk and transition risk—we also should be thoughtful when considering the steps we take.  Any actions that may impose new obligations and costs on our market participants, especially end-users that rely upon our markets for hedging, must be balanced and carefully considered.

For registrants that have other regulators and are already subject to climate risk management frameworks, we should seek to harmonize from the start with existing prudential and other regulatory regimes in order to be efficient and avoid imposing duplicative or unnecessarily burdensome and complex requirements.

And most importantly, I caution that for any potential future Commission action, we must take care to consider the impact on small entities and evaluate alternatives that would accomplish the objectives of any potential rule without unduly burdening the substantial numbers of growers, producers, and other end-users who depend on our markets for risk management and price discovery.[4]  That is, after all, the original purpose of our markets and the Commission.

“‘[D]ecentralized’ is also an apt description of the regulatory landscape for crypto. Crypto has many actual and aspirational regulators. Regulatory decentralization can have benefits, but, if not properly managed, also can aggravate the already confusing lack of regulatory clarity over crypto. Cooperation among regulators is essential to strong, effective, pragmatic crypto regulation.”

“Crypto gives us a new opportunity to cooperate and do so publicly. As an initial step, we are calling on our agencies to hold a joint set of public roundtables to evaluate recent market events and risks, and to discuss how to regulate crypto responsibly. These roundtables would be open to the public, and panelists would include crypto users, investor and customer advocates, industry members, and other regulators. The goal would be to assess whether new regulations are necessary to protect the public and the markets, how existing regulations might be modernized to better account for innovation, and how technology is likely to reshape our markets. We could start with topics such as digital asset trading platforms, crypto derivatives, stablecoins, decentralized finance, and the balance between privacy and anti-money laundering measures.”

“If we act now, it could lead our two agencies to work better together. Doing so would benefit the capital markets, not just the crypto markets.”

Read the full op-ed here.

The Commodity Futures Trading Commission (CFTC) issued an Order filing and settling claims against Glencore International AG, Glencore Ltd., and Chemoil Corporation (Glencore) for violations of the anti-manipulation provisions of the Commodity Exchange Act (Act).  The order requires Glencore to pay $1.186 billion, which includes a civil monetary penalty of $865,630,784 and disgorgement amount of $320,715,066, each being the highest paid in any CFTC case.

Glencore is one of the world’s largest energy and commodities trading firms.  Continuing for more than a decade, Glencore’s misconduct included attempts to manipulate and manipulation of several U.S. based S&P Global Platts (Platts) benchmark prices for physical oil and related derivatives.  In addition, Glencore engaged in corrupt practices, bribing numerous individuals who worked for state-owned entities in various countries, including Brazil, Cameroon, Nigeria, and Venezuela as part of its scheme to defraud the market.

The Act broadly prohibits fraudulent conduct and manipulation and attempted manipulation of the price of any commodity in interstate commerce, regulated futures, and swaps.  Our markets rely on the integrity of benchmarks, such as the Platts physical oil benchmarks, because these benchmarks affect the price of fuel and related products and provide the reference price for the settlement of many futures and swaps.

Glencore’s manipulative conduct defrauded its counterparties and undermined market integrity.  The company’s actions stymied price discovery.  Inaccurate prices hurt market participants, end-users, and many businesses and consumers who, as a result, incur the cost for such misconduct by paying higher prices at the grocery store and at the pump.  The price of oil acutely affects the cost of growing food as well as manufacturing and distribution of goods and services.

I recognize the efforts of the Division of Enforcement and its staff, including Gates S. Hurand, Peter Janowski, Jacob Mermelstein, David W. MacGregor, R. Stephen Painter, Jr., Michael Cazakoff, Matthew Edelstein, Patrick Marquardt, Jordon Grimm, Lenel Hickson, Jr., and Manal M. Sultan.  Additional staff members in the Division of Enforcement who provided assistance include Allison Passman, Doug Snodgrass, Joseph Konizeski, Stephanie Reinhardt, and former Division staff member Brigitte Weyls.

Further, I recognize the Division of Enforcement’s effective work in parallel with the Department of Justice Fraud Section and thank the Comissão de Valores Mobiliários (the Brazilian Securities Market Commission), the Bermuda Monetary Authority, the Hong Kong Securities and Futures Commission, the Luxembourg Commission de Surveillance du Secteur Financier, the Mexico Comisión Nacional Bancaria y de Valores, and the Banco Central del Uruguay for their assistance.