Climate Risk Scorecard

The Commodity Futures Trading Commission (CFTC) regulates commodity futures, commodity options, and swaps trading markets. The CFTC’s mission is to promote the integrity, resilience, and vibrancy of the U.S. derivatives market through sound regulation. It investigates and prosecutes commodities fraud, including foreign currency schemes, energy manipulation, and hedge fund fraud. Firms and individuals that deal with futures, swaps, and options must register with the CFTC, including commodity pool operators and advisors, futures commission merchants, introducing brokers, and swap dealers. 

Commodities are economic goods that are interchangeable with other goods of the same type, regardless of who produced them. Commodity prices are generally determined by supply and demand, and can be impacted by economic shocks, natural disasters, and investor preferences. Most commodities are raw materials, basic resources, agricultural, or mining products, but also include carbon offsets and carbon credits. Investors and traders can buy and sell commodities directly in the cash market or via derivatives such as futures and options. Commodity futures contracts are legal agreements to buy or sell commodities at a predetermined price and delivery date. 

Transactions relying on registries underlying the exchange-based carbon futures may be regulated by the CFTC. Carbon credits are currently traded in on voluntary markets that are not currently subject to the regulations that govern derivatives and securities markets. Because the CFTC is tasked with preventing fraud and manipulation in derivatives markets, it has the authority to review carbon markets and ensure high quality carbon offsets with a focus on integrity, infrastructure, and credibility.  

The CFTC’s regulations also require swap dealers to maintain an effective risk management program that covers various risks. It requires swap dealers to “establish, document, maintain and enforce” a system of risk management policies and procedures to monitor and manage market, credit, liquidity, and “any other applicable risks,” which could include material climate-related risks.