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

The New York Department of Financial Services expects all firms, including virtual currency businesses, to start assessing climate change-associated financial risks.

Oct 29, 2020 at 1:30 p.m. UTC
Updated Sep 14, 2021 at 10:25 a.m. 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 (NYDFS) said that it expects firms, including virtual currency businesses, to start assessing such risks and develop possible approaches to mitigate them. The letter follows similar guidelines issued by the NYDFS for the state’s insurance providers in September. 

Noting that each rise of one degree celsius in global temperatures leads to damages worth 1.2% of the U.S. gross domestic product (GDP), 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. It added that flood risk could impact regional and community banks in particular. 

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 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.  

A similar concern regarding the environmental impact of crypto mining was also raised by Heath Tarbert, chairman of the Commodity Futures Trading Commission (CFTC), during an interview at CoinDesk’s invest:ethereum economy event. “There are issues with mining, of course, so number one [is] environmental issues,” he said, speaking about Ethereum’s move to a proof-of-stake system and how that could help make Ethereum more environmentally friendly. 

While there are pressing concerns about bitcoin’s energy consumption, it is also important to note that the environmental impact also depends on how that energy was produced. For example, China’s Sichuan region is a bitcoin mining hub but is also plush with supply of hydroelectric power. 

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. 

The letter said organizations like banks, mortgage servicers, etc. 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 climate change is likely to affect organizations differently, the regulator’s letter said 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. 

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
Japan’s Nomura Said to Launch Crypto Unit With DeFi and NFTs on Menu: Report

The Japanese investment bank carried out its first cryptocurrency derivatives trades last week.

The Japanese investment bank carried out its first cryptocurrency derivatives trades last week.

2
Morgan Stanley Says NFTs Next to Watch After UST Collapse

Most speculative and leveraged areas of crypto markets now in focus, the bank’s analysts said.

Most speculative and leveraged areas of crypto markets now in focus, the bank’s analysts said.

3
Bitcoin Sees Seven Straight Weeks of Losses For the First Time

Fears of inflation and poor macroeconomic sentiment have caused bitcoin to fail as an inflation hedge in recent weeks.

Fears of inflation and poor macroeconomic sentiment have caused bitcoin to fail as an inflation hedge in recent weeks.

4
Crypto Hedge Fund Elwood Closes $70M Funding Led by Goldman Sachs and Dawn Capital

Dawn Capital co-led the Series A alongside CommerzVentures, Barclays, Galaxy Digital Ventures and BlockFi Ventures.

Dawn Capital co-led the Series A alongside CommerzVentures, Barclays, Galaxy Digital Ventures and BlockFi Ventures.