The Climate Change Financial Risk Act of 2025 requires the Board of Governors of the Federal Reserve System, working with designated federal climate science leads, to develop public climate risk scenarios and use them to analyze financial stability risks from both physical and transition channels.
The bill creates a technical advisory body to build scenarios, mandates three initial scenarios within one year, obligates the Fed to run biennial analyses of the largest banking organizations under those scenarios, and requires covered firms to submit climate risk resolution plans. It also establishes a recurring anonymized survey of large supervised firms to surface geographic and sector concentrations.
The statute is designed to fold climate risks into supervisory capital planning and systemic risk monitoring rather than leave those analyses to market actors alone.
At a Glance
What It Does
The bill directs the Federal Reserve to develop three climate risk scenarios within one year, establish a Climate Risk Scenario Technical Development Group, conduct biennial scenario analyses of defined ‘‘covered entities,’’ require climate risk resolution plans based on the analyses, and run a recurring anonymous survey of large supervised firms.
Who It Affects
Directly affects nonbank financial companies and bank holding companies meeting two asset thresholds ($250 billion and a conditional $100 billion category), and all supervised firms with $10 billion+ assets for survey purposes. It also pulls in multiple federal science agencies to advise and coordinate scenario design.
Why It Matters
This is the first statutory requirement to embed climate-driven physical and transition risk scenarios into Fed supervisory practice, with potential consequences for capital planning, capital distributions, and firm-level remediation plans — shifting how largest firms must prepare for long-horizon climate exposures.
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What This Bill Actually Does
The bill creates a 10‑member Climate Risk Scenario Technical Development Group (TDG) — five climate scientists and five economists — selected by the Fed after consultation with designated federal climate science leads (NOAA, EPA, DOE, NASA, USGS, DOI and others). The TDG’s job is to recommend and help build scenario design, produce final work products publicly, and provide technical assistance and resources for industry use.
Members serve without pay and the group is exempt from Chapter 10 of Title 5.
Within one year of enactment the Board, coordinating with the climate science leads and considering TDG recommendations, must produce three climate risk scenarios: a 1.5°C scenario, a 2°C scenario, and a ‘‘likely/very likely’’ scenario that reflects realized policies and actions as of the scenario date (explicitly excluding unimplemented commitments). The scenarios must account for both physical risks (heat, sea level, storms, etc.) and transition risks (policy, technology, market, reputational, and litigation effects) and incorporate impacts across sourcing, production, transportation, asset values, liquidity, labor productivity, migration, disease, and geopolitical effects.The bill amends the Financial Stability Act to require the Fed, with other regulators and the climate science leads, to run biennial analyses testing whether covered entities hold sufficient consolidated capital to absorb losses under each scenario.
The first three analyses carry a temporary protection: covered entities will not face adverse consequences from those initial runs, and the Fed must publicly summarize each initial analysis within 60 days. After the initial period, covered entities must submit climate risk resolution plans before subsequent analyses; those plans must include a capital policy for climate risk and quantitative and qualitative targets to remedy vulnerabilities identified in the scenarios.
If the Fed objects to a plan it may prohibit capital distributions other than issuance of regulatory capital instruments.Separately, the Fed must design and administer a ‘‘sub‑systemic exploratory’’ survey to all supervised firms with $10 billion+ in assets that are not covered entities, first to be administered within one year of the completion of the first required analysis. The Fed will publish anonymized summary reports (initial report within 18 months of the first administration, then biennial administration with reports within 180 days).
Participation is anonymized in public reports, but the statute does not prevent traditional examinations and enforcement discovered independently.
The Five Things You Need to Know
The Board must publish three climate risk scenarios within 1 year: a 1.5°C scenario, a 2°C scenario, and a ‘‘likely/very likely’’ scenario based on implemented policies.
Covered entities are defined as nonbank financial companies or bank holding companies with ≥ $250 billion in consolidated assets, or ≥ $100 billion with a Fed determination under FSOC‑style factors.
The Fed must conduct biennial consolidated capital analyses for covered entities under each scenario; the first three analyses cannot trigger adverse consequences and summaries must be public within 60 days.
After the initial tests, covered entities must submit a climate risk resolution plan based on the latest analysis that includes a capital policy and quantitative/qualitative remediation targets; the Fed may object and, if it does, bar capital distributions except for issuance of regulatory capital instruments.
The Board must administer a recurring anonymized survey to supervised firms with ≥ $10 billion assets to identify geographic/sector concentrations and adaptation plans, and publish aggregated reports (initial report due within 18 months of the first administration).
Section-by-Section Breakdown
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Definitions that set supervisory scope
This section defines key terms that determine who and what the statute covers. The covered‑entity thresholds ($250 billion and a conditional $100 billion category) and the surveyed‑entity threshold ($10 billion) are statutory gatekeepers that decide which firms face formal analyses and which face the lighter‑touch survey. It also codifies ‘‘physical risks,’’ ‘‘transition risks,’’ and ‘‘value chain’’ to broaden the kinds of exposures the Fed must consider in modeling.
Climate Risk Scenario Technical Development Group (TDG)
The TDG is a 10‑member advisory body split evenly between climate scientists and financial economists. The Fed selects members after consulting climate science leads; members receive no compensation and the group is carved out of Chapter 10 of Title 5. Practically, the TDG is the technical engine — it recommends scenario parameters, helps translate scientific outputs into economic shocks, and must publish its final work products and supporting data, creating a public technical baseline for the Fed and market participants.
Scenario design, content, and update rule
The Fed must deliver three scenarios within one year and coordinate with federal climate agencies and international supervisors for comparability. Scenario design must explicitly model both physical and transition channels and consider supply‑chain, labor, agriculture, asset‑value, liquidity, migration, disease, and geopolitical effects. The TDG may recommend updates to the 1.5°C and 2°C anchors if scientific consensus shifts, creating an explicit mechanism to adjust scenario baselines over time.
Biennial climate stress tests and climate risk resolution plans
This amends section 165(i)(1) of the Financial Stability Act to require biennial, consolidated capital analyses of covered entities under the three scenarios. The first three analyses are informational only (no adverse supervisory actions) and summarized publicly. Thereafter, firms must file climate risk resolution plans informed by the analyses; plans must include a capital policy for climate risks plus targets to address weaknesses. The Fed can reject plans and, on objection, block capital distributions other than issuance of regulatory capital instruments until the plan is acceptable.
Sub‑systemic exploratory survey and reporting
The Fed must design and administer an anonymized survey to supervised entities with ≥ $10 billion to identify firms with concentrated exposures to climate risk and to assess plausibility of their adaptation strategies. The first round is timed relative to the completion of the Fed’s first analysis; aggregated, anonymized reports are public and repeated biennially. The statute forbids naming respondents in public reports but does not limit traditional examination or enforcement discovered independently.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Federal regulators and financial stability policymakers — gain standardized climate scenarios, better cross‑agency coordination, and recurring data to inform macroprudential decisions and system‑level surveillance.
- Climate science community and federal climate agencies — receive a statutory role (climate science leads) and public platform for translating scientific outputs into financial scenarios and methodologies.
- Investors and market participants — get comparable, public scenario outputs and Fed summaries that can reduce information asymmetries and help price climate exposures more consistently.
Who Bears the Cost
- Covered entities (≥ $250B or conditional $100B) — must run scenario analyses, build and update climate risk resolution plans, potentially retain more capital or curb distributions if plans are rejected.
- Surveyed entities (≥ $10B) and large supervised firms — face recurring reporting and data‑collection burdens to answer the sub‑systemic survey and demonstrate adaptation plausibility.
- Board of Governors and participating agencies — must allocate analytical, IT, and staff resources to build scenarios, conduct tests, administer surveys, and manage public reporting; international coordination may add complexity and cost.
Key Issues
The Core Tension
The central dilemma is between proactive macroprudential precaution — using forward‑looking, scenario‑based supervision to protect the financial system from potentially irreversible climate shocks — and the risk of imposing supervisory constraints based on uncertain, long‑horizon models that could distort capital allocation, reduce credit availability, and impose costs on communities before climate trajectories and policies have crystallized.
Model risk and horizon mismatch: The bill asks supervisors to act on scenarios that span decades and require integrating climate science, macroeconomics, and firm‑level exposures. Those models will embed deep uncertainty — about emissions trajectories, technology adoption, policy responses, and socio‑economic feedbacks — which complicates supervisory judgments tied to capital adequacy.
Translating spatially granular physical impacts into consolidated capital shocks requires data and methodological choices that will materially influence outcomes.
Regulatory signal versus real economy effects: Requiring plans and enabling distribution limits creates a credible enforcement lever, but it also risks unintended consequences. If the Fed leans hard on capital or balance‑sheet remediation based on long‑horizon scenarios, firms might prematurely shrink lending or reprice services in ways that disproportionately affect communities dependent on local credit.
The statute’s protection for the first three analyses buys time, but subsequent actions could be litigated or politically contested. Finally, data gaps — particularly for nonbank exposures, value‑chain linkages, and insured vs uninsured losses — may limit the tests’ accuracy and comparability across firms and jurisdictions.
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