WASHINGTON – Climate change is an “emerging threat” to the stability of the U.S. financial system, leading federal regulators warned in a report on Thursday, paving the way for the Biden administration to take more aggressive regulatory action to prevent climate change disrupt global markets and the economy.
The report, produced by the Financial Stability Oversight Council, is the clearest expression of alarm yet about the risks that rising temperatures and seas pose to the economy and could herald sweeping changes in the types of ‘investments made by banks and other financial institutions.
It was released as President Biden and senior administration officials prepare to attend the United Nations Climate Change Conference in Glasgow, where the United States will attempt to demonstrate to the world that it is serious in the fight against the climate threat. Mr Biden’s climate agenda has stalled in Congress, making financial regulation one of the few areas he can cite as proof of his commitment to warming.
The Biden administration also released a series of reports Thursday on the threat climate change poses to national security, saying it increases the risk of conflict within and between countries and could potentially displace dozens of people. millions of people around the world.
The report from the Financial Stability Supervisory Board, which is chaired by the Secretary of the Treasury and includes heads of key financial regulators, described the financial threat of climate change in no uncertain terms. Higher temperatures lead to more natural disasters, such as hurricanes, forest fires and floods. These, in turn, lead to property damage, lost income and disruption to business activity that threatens to change the way assets, such as real estate, are valued.
At the same time, moving away from fossil fuels could lead to a sudden drop in the price of stocks and other assets related to oil, gas, coal and other energy companies, or sectors that depend on them, such as automakers and the industry. heavy industry. Such a change could harm the stock market, retirement savings and other parts of the financial industry.
âThe financial sector may face credit and market risks associated with lost income, defaults and changes in asset values,â the report said, adding that liquidity and legal risks are also concerns.
The council warned that low-income communities and people of color are disproportionately threatened by climate change as they lack the resources to protect their properties and deal with loss of income. This dynamic threatens to exacerbate income inequality in the United States.
The report made a series of general recommendations; Nevertheless; he avoided the kind of political prescriptions that environmental groups and progressive Democrats demanded from the Biden administration. For example, he did not recommend that banks be subject to more stringent rules such as assessing their ability to withstand climate-related losses, new capital requirements, or restrictions on extending funding to businesses. fossil fuel companies.
It also didn’t include specific timelines or other milestones that it wants financial regulators to meet.
The report recommended the formation of a financial risk committee, a more rigorous analysis of the effects of climate change on the insurance sector and greater coordination with climate experts to better understand the economic and financial impact of the threat. emerging.
The board said it supports work by the Securities and Exchange Commission to develop rules that could require companies to disclose how climate change risks could affect their operations or profits. He added that regulators should consider whether to require banks to disclose more information about their climate-related risks. The board includes executives from the SEC, the Federal Reserve and other banking regulators.
The Biden administration has previously declared climate change an existential crisis, but much of its climate agenda remains stuck in Congress. Environmental groups have argued that the Biden administration is not acting quickly enough or with enough ambition after four years in which the Trump administration dismissed the threat of climate change and canceled environmental guarantees.
Some environmental groups suggested the recommendations were reduced because Treasury Secretary Janet L. Yellen, who chairs the board, was seeking a consensus document that would be acceptable to all members. Two members – Jerome H. Powell of the Fed and Jelena McWilliams of the Federal Deposit Insurance Corporation – were appointed to head their agencies by former President Donald J. Trump. Ms McWilliams was the only board member who abstained from voting to approve the report on Thursday.
Ms Yellen, who will travel to Glasgow for the United Nations conference next month, praised the report’s importance at the council meeting on Thursday.
âThis is an essential first step in tackling the threat of climate change and it will by no means be the end of this work,â Ms. Yellen said.
Ben Cushing, director of the Sierra Club’s Fossil-Free Finance campaign, said the report was a step in the right direction but needed to be bolder. He said Wall Street companies are contributing to the climate crisis and regulators need to get them under control.
“Secretary Yellen’s report sets out the preliminary steps to make the financial sector more transparent and accountable for its growing climate risks, but it’s also a missed opportunity to recommend actions that actually reduce climate risks and limit toxic investments by Wall Street in the fossil fuels driving the crisis, âCushing said.
The next step is for the various financial regulators to heed the warnings in the report, said Steven M. Rothstein, managing director of Ceres Accelerator for Sustainable Capital Markets, which works with investors to tackle climate risks.
âBanks, insurance companies and fossil fuel companies should be warned,â Rothstein said. “Each agency must now provide specific timelines when planning to put in place measures to protect the safety and soundness of our financial system, our institutions, our savings and our communities.”