The climate crisis must be the priority of financial regulators

Northampton, MA –News Direct– Ceres

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Central banks around the world are responsible for ensuring economic and financial stability. So why would some of them downplay perhaps the most significant threat to the future of our society and its financial markets – climate change?

Corporate headlines over the past few months have been replete with encouraging stories about climate action. The European Central Bank is increasing its contribution to the fight against the climate crisis. US President Biden has pledged to cut emissions by 50-52% by 2030, and US Treasury Secretary Janet Yellen is leading regulatory review to examine the potential risk of climate change to the US financial system . And earlier this year, the UK Treasury announced that its top financial regulators would be required to consider climate change as part of a government-mandated transition to a net zero economy by 2050.

However, as we experience increasingly frequent natural disasters around the world – such as high temperatures in the United States and devastating flooding in Germany and China – it is clear that this trend toward financial regulatory considerations related to climate is not happening fast enough. Unfortunately, we are running out of extreme weather records to break.

Despite evidence to the contrary, skepticism remains as to whether the responsibility for tackling the climate crisis lies with financial regulators and central banks. In the United States, for example, the Federal Reserve has been accused of mission drift by some lawmakers.

It is nothing more than a misguided attempt to ignore the greatest potential risk to our financial markets.

Government agencies and financial institutions regularly assess risks. This is a critically important and, frankly, basic responsibility, and it involves regularly examining the impact of global crises on markets. In the past few months alone, the Fed has recognized the coronavirus as one of the top financial risks in the United States and has indicated that it will strengthen its cryptocurrency risk and taxation regulations, while the Federal Deposit Insurance Corporation (FDIC) has taken several steps to strengthen the resilience of the US banking system against COVID-19[FEMININEAprèslarécessionde2008plusieursnouvellesgarantiesontétémisesenplaceparlesrégulateursetleslégislateursNoussavonsquelechangementclimatiqueposeunrisquesystémiquepournotreéconomieAllons-nousvraimentdevoirattendrequeleschangementsclimatiquesnousfrappentencoreplusdurementmalgrélefaitquenoussachionsqueleproblèmeestlàetqu’ils’aggravesérieusement?

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If a banker or banking regulator suggested that they didn’t need to plan for the next pandemic, next cyberattack, or other potentially major disruption, they would meet a chorus of criticism alleging they were failing to comply. its fiduciary responsibility. Climate risk is a larger and more systemic potential threat, but leaders in banking, insurance and even financial regulation are failing to take climate risk fully into account.

Central bankers in some countries are starting to sound the alarm bells and recognize the value of tools such as weather stress tests, climate scenario analysis and other risk assessments. These regulatory measures are going in the right direction, but we need more central banks, including the Federal Reserve, to act faster. There are excellent examples of private sector climate leadership, in many cases pooling its collective influence to drive change. For example, tech giants like Apple, HP and Salesforce are calling for uniform regulations that require companies to disclose their greenhouse gas emissions. More than 400 companies have urged the Biden administration to reduce the 2030 emissions level by at least 50% and investors with $ 43 trillion in assets have made significant commitments to meet the net zero commitments of by 2050 with solid intermediate targets for 2030 as part of the Net Zero Asset Managers initiative. .

But without a significant top-down orientation, our economies will be unable to reach their full positive climate potential. We are ready to cause damage today that will be irreversible in the long term.

To protect our banks, insurance companies, and financial institutions from increasing climate risks, the Treasury Department, Fed, Securities and Exchange Commission, and other U.S. regulators need to take several steps:

1. Immediately affirm the systemic nature of the climate crisis and its impacts on the stability of financial markets via a statement by the president of the agency or a report published by the agency that highlights the risks of climate change for financial markets.

2. Activate action on prudential supervision. US regulators have the explicit responsibility of overseeing the risks that financial institutions take. Financial regulators should integrate climate change into their prudential supervision of banks, insurance companies and other regulated financial institutions. This includes pilot climate stress tests and the potential strengthening of capital and liquidity requirements to incorporate climate risk.

3. Support the work of the Securities and Exchange Commission on mandatory climate disclosure. The SEC recently solicited comments on the climate change disclosure. We hope they release bold rules later this year requiring disclosure of the business climate.

4. Examine how climate risks further exacerbate systemic racism, reflected in particular in financial institutions. Financial regulators should develop strategies to address systemic climate risks and structural racism in an integrated manner. The Community Reinvestment Act offers good opportunities to improve the economic and climate resilience of low-income and vulnerable communities.

5. Build capacity for smart decision-making on climate change by coordinating action with other US and global financial regulators and hiring and training additional staff. Coordinated action by US financial regulators at the global, federal and state levels is essential to accelerate efforts to address climate risk. The Financial Stability Supervisory Board in general and the Executive Decree on Climate-Related Financial Risks play an essential coordinating role.

Financial regulators have a critical role to play in ensuring the resilience of our economy, and climate risk must be at the center of their concerns if they are to fulfill their mandates to their fullest potential. It is only through responsibility and ownership that we will make substantial progress in tackling the climate crisis.

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