New York's Financial Regulator Wants Firms, Including Crypto Miners, to Look Closer at Climate Change Risks

Oct 29, 2020 at 13:30 UTC.New York state's financial regulator is urging firms to pay closer attention to financial risks associated with climate change.

In a letter sent to all regulated entities on Thursday, the New York Department of Financial Services said that it expects firms, including virtual currency businesses, to start assessing such risks and develop possible approaches to mitigate them.

Noting that each rise of one degree celsius in global temperatures leads to damages worth 1.2% of the U.S. gross domestic product, the letter said reduced economic output in communities hit harder by climate change could also lead to an increase in default rates, reduced lending activity, devalued assets, and losses.

Addressing virtual currency businesses, the letter stated that studies suggest the environmental impact of mining cryptocurrencies like bitcoin can be substantial.

"The energy cost for mining virtual currencies is sizable compared to the value of the virtual currencies," said the letter.

While the letter acknowledged that the exact energy consumption of bitcoin mining also depends on the geography, it added that "Virtual currency firms should consider increasing transparency of the location and equipment used in bitcoin mining," in order to add clarity about the environmental impact.

According to the letter, the NYDFS expects all regulated virtual currency businesses to conduct an assessment of climate change associated risks which could impact them directly or indirectly.

Should also designate a board member, a committee of the board, as well as a senior management function, responsible for the assessment and management of financial risks from climate change.

Adding that the NYDFS understands that climate change is likely to affect organizations differently, the regulator's letter said that each organization should take a "Proportionate approach" that reflects its exposure to climate change associated financial risks.

"DFS is developing a strategy for integrating climate-related risks into its supervisory mandate," the letter said, indicating that mitigating climate change associated risks is likely to stay on the regulator's radar going forward.