The Climate Change Financial Risk Act of 2025 aims to integrate climate change considerations into the financial oversight responsibilities of the Federal Reserve System. Congress expresses a sense that climate change poses significant and increasing financial risks, including physical impacts like extreme weather events and transition risks from shifting energy policies, which could affect the safety and soundness of financial institutions and overall financial stability. Current stress tests conducted by the Board of Governors are deemed insufficient to address these emerging climate-related risks.

To address this, the bill mandates the establishment of a Climate Risk Scenario Technical Development Group, composed of climate scientists and economists, to advise the Board of Governors. Within one year, the Board, in coordination with climate science leads, must develop three distinct climate change risk scenarios: 1.5 degrees Celsius, 2 degrees Celsius, and a current policy trajectory scenario. These scenarios must account for various physical and transition risks, including disruptions to supply chains, changes in asset values, and impacts on labor productivity and credit availability.

For large financial institutions, termed "covered entities" (those with over $100 billion or $250 billion in assets), the bill amends the Financial Stability Act of 2010 to require biennial analyses. These analyses will evaluate whether covered entities possess sufficient capital to absorb financial losses under each climate change risk scenario. While the first three analyses are exploratory with no adverse consequences, subsequent tests will require covered entities to submit a "climate risk resolution plan" outlining their capital policy and targets to remedy identified vulnerabilities, with potential for rejection by the Board.

Furthermore, the Board of Governors, in consultation with other federal financial regulators, must develop and administer a sub-systemic exploratory survey for smaller financial institutions, or "surveyed entities" (those with over $10 billion in assets). This survey will assess their ability to withstand climate risk scenarios, identify concentrations of climate exposure, and understand their adaptation plans. The survey results will be summarized and publicly reported biennially, without identifying individual entities, to provide insights into broader financial system vulnerabilities.