A coalition of the country’s leading financial regulators on Thursday outlined the first steps in monitoring and overseeing climate-related financial risks, as the Biden administration continues to develop its environmental policies.

The Financial Stability Oversight Council, headed by Treasury Secretary Janet Yellen, released a 133-page report detailing several recommendations on how to avoid financial disintermediation that could result from extreme weather and climate events.

The report makes four main recommendations: increase regulatory resources devoted to climate risk assessment, collect new data to better assess these risks, improve climate-related public disclosures, and conduct “scenario analysis” to examine future risks. possible.

The FSOC, which includes eight federal regulators and three state regulators among its members, opens the door for a debate on how the private sector and government should assess – and mitigate – the financial implications of disruptive events like hurricanes. and forest fires.

“We already know that climate change has already started to cause a series of economic damage, and failure to deal with climate-related financial risks will only allow them to get bigger,” Yellen said Thursday.

Yellen noted that serious financial risks are not just related to the disasters themselves, but to the transition to a net zero economy. The former Federal Reserve chairman added that further “smart government policies” will be needed from the White House to facilitate such a transition.

The report is released ahead of the United Nations Climate Change Conference which begins on October 31.

It’s unclear how binding the report’s recommendations are, but Treasury officials said the board’s broad support for the report shows that regulators will be a solid guide for each agency’s work on these issues.

The recommendations include specific actions that the FSOC and its members should be able to take soon, such as creating a Climate Finance Risk Committee (CFRC) that will coordinate policy work between regulators.

Other recommendations may require rule making, a process that could involve public comment. The report advises FSOC members to “use existing authorities” to collect data that could help regulators close the gap in climate-related risks in the private sector.

Corporate financial risk disclosures are likely to be a more specific recommendation to the Securities and Exchange Commission, where Chairman Gary Gensler has previously expressed interest in expanding reporting.

At the Federal Reserve (the main regulator of the country’s largest banks), existing work on scenario analysis should be boosted. Such a tool would use different hypothetical climate scenarios to examine the long-term impact of weather events on a range of financial markets.

“We will share our progress and look forward to coordinating with our FSOC colleagues to address the critical challenges outlined in the report,” Fed Chairman Jerome Powell said Thursday.

Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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