Biden Administration Wants the Financial Sector to Face up to Climate Risk

March 18, 2021

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by Steven Mufson and Juliet Eilperin (Washington Post) The Commodity Futures Trading Commission aims to create a new Climate Risk Unit, joining initiatives at Treasury, the Securities and Exchange Commission, and the Federal Reserve -- A growing number of federal regulators are pushing corporate America to reckon with the cost of climate change, arguing that global warming poses significant peril not only to the environment but also to the U.S. economy.

On Wednesday, Rostin Behnam, the acting chairman of the Commodity Futures Trading Commission, announced that he is establishing a Climate Risk Unit to focus on the role of complex financial derivatives in understanding and pricing climate-related hazards. That follows a request on Monday by the Securities and Exchange Commission for public input on how to require companies to disclose “consistent, comparable, and reliable information on climate change” risks to investors.

The moves come as President Biden’s administration is pledging to slash greenhouse gas emissions and following the U.S. record for billion-dollar weather and climate disasters set in 2020. There were 22 extreme weather events last year — ranging from tropical cyclones to drought — that cost taxpayers, businesses, investors and homeowners a combined $95 billion, according to the federal government.

In recent weeks, the Treasury Department and the Federal Reserve have highlighted the ballooning costs of extreme weather linked to climate change and also flagged the potential danger to businesses, banking and investments that could come from a rocky transition away from an economy rooted in fossil fuels.

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The CFTC action — one of several taken across the Biden administration in less than two months — could shift investment decisions across the nation by signaling to markets that it is costlier to invest in fossil fuels and other projects that could exacerbate global warming. At the same time, these policies could make it easier to finance clean energy and other efforts aimed at addressing climate change.

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Behnam and others think that if financial institutions don’t assess, monitor and manage climate risks, they could face debilitating losses or be unable to shift to a greener economy.

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Among the steps the agencies could take are altering the way oil companies calculate their carbon-rich reserves; changing how farmers count the carbon storage increased by improved tilling techniques; making sure cap-and-trade credits in California and the northeast’s Regional Greenhouse Gas Initiative are properly measured; and ensuring that bond or derivative funds don’t include funds from “green bonds” that aren’t green.

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Republicans have also voiced concerns about requiring private companies to evaluate their operations’ climate effects and vulnerabilities. At a confirmation hearing this month for Gary Gensler, a former Goldman Sachs executive whom Biden has chosen to head the Securities and Exchange Commission, Sen. Patrick J. Toomey (R-Pa.) said that “the securities laws are not the appropriate vehicle to regulate climate change nor to correct racial injustice or intimidate companies regarding political spending.”

But Gensler, a former CFTC chairman, made it clear that he plans to make climate change a priority. “Increasingly, investors really want to see — tens of trillion of dollars in assets behind it — climate risk disclosure,” he said at the March 2 hearing.

Gensler told the senators that “issuers would benefit from such guidance. So I think through good economic analysis, working with the staff, putting out to the public to get public feedback, that is something the commission, if I’m confirmed, would work on.” READ MORE

CFTC Acting Chairman Behnam Establishes New Climate Risk Unit (Commodities Futures Trading Commission)

Renewables investor performance ‘beats fossil fuels’ (ReNews.Biz)

GOP REBUFFS FINANCIAL CLIMATE RISKS: (Politico's Morning Energy)

THE FED CHANGES THE CLIMATE: (Politico's Morning Energy)

Fed to establish new climate risk panel, Brainard says (Reuters)

DEMS TURN UP THE HEAT ON INSURANCE GIANTS:(Politico's Morning Energy)

SEC MOVES: (Politico's Morning Energy)

CLIMATE FINANCE EO: (Politico's Morning Energy)

NEW POLL: US Voters Support Strong Government and Corporate Action to Curb Wall Street's Climate Impacts (Sierra Club)

Climate Change Represents an Existential Threat to Financial Markets (Guidehouse Insights)

New Zealand introduces climate change law for financial firms in world first (Reuters)

Excerpt from Politico's Morning Energy: GOP REBUFFS FINANCIAL CLIMATE RISKS: Republicans in the other chamber are pushing back on calls for financial regulators to prepare the sector to confront risks posed by climate change. “Climate change is not some unforeseen risk. It does not pose a risk to our financial system,” Sen. Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, said during a Thursday hearing. “This is about undermining the independence of regulators so that they can be pressured to allocate credit as the political left would like it to be allocated.”

The hearing took place shortly after several new developments on that front just this week alone: the Commodity Futures Trading Commission established a climate risk unit on Wednesday; the Securities and Exchange Commission on Monday invited public comment on mandatory climate risk disclosure rules; and two days later BlackRock, the world’s largest asset manager, endorsed those disclosures, Pro’s Lorraine Woellert reports. Investors and shareholders, too, have demanded more information from companies on the risks their businesses face from policies that would devalue carbon-intensive assets or threats from climate-driven events like drought, floods and wildfires.

While the Biden administration and Democrats press for stricter financial oversight on climate change, Republicans contend that would discriminate against fossil fuel companies and certain industries by shifting investment to greener firms. And they say that climate risk isn’t in regulators’ purview, and that the issue is too complex to regulate. Senate Republicans wrote to Fed Chair Jerome Powell that the central bank doesn’t have authority to regulate climate change, Lorraine also reports.

Republicans were willing to acknowledge the presence of human-driven climate change, but the hearing underscored the party’s reticence in wrestling with its costs. Republicans framed early regulatory moves as inflicting damage on fossil fuel industries that would shed jobs without acknowledging climate change is already imposing costs. READ MORE

Excerpt from Politico's Morning Energy: THE FED CHANGES THE CLIMATE: The Federal Reserve is dedicating a whole arm to climate risks in the financial system. Fed Gov. Lael Brainard announced the creation of a Financial Stability Climate Committee on Tuesday as the industry engages in more soul searching on its carbon footprint. The new organization would complement the central bank’s previously announced Supervision Climate Committee, which focuses on how climate change endangers banks under the Fed’s supervision. Zachary Warmbrodt has more for Pros.

Meanwhile, Fannie Mae and Freddie Mac face increasing threats of losses from wildfires and floods fueled by climate change, according to a Tuesday report by the Federal Housing Finance Agency's internal watchdog. READ MORE

Excerpt from Politico's Morning Energy: DEMS TURN UP THE HEAT ON INSURANCE GIANTS:A group of Democratic senators asked the heads of top U.S. insurance companies how they’re planning for climate change, including concerns over environmental challenges and the transition away from fossil fuels. Our Zack Colman got copies of the letters, which request answers by April 16.

The letters ask about the physical risks of climate change, such as property damage due to rising sea levels, and transition risks, such as declining value of fossil fuel-intensive assets. Environmental activists have mounted increased pressure on insurers and investors to drop coal and oil sands projects in a bid to make projects financially unviable.

Sens. Sheldon Whitehouse, Elizabeth Warren, Jeff Merkley and Chris Van Hollen signed onto the letters. Read more from Zack.

Also: Fed Chair Jerome Powell brought up similar concerns over physical and transition risks when discussing the Fed’s role on climate change during an interview with NPR on Thursday. READ MORE

Excerpt from Politico's Morning Energy: SEC MOVES: Chevron shareholders will have a say in the company’s response to climate change after the SEC rejected the oil giant’s request to block a vote on a measure that asks the company to account for how a 2050 net-zero emissions goal would affect its bottom line.

A Chevron spokesperson told ME in a statement that “Chevron’s Board of Directors reviews proposals from shareholders in detail and will make recommendations to stockholders about how to vote on each request in our proxy statement, which we plan to publish on April 8.”

It’s the latest in a string of losses by fossil fuel companies at the SEC. As companies prepare for annual meetings this spring, climate is shaping up to be a defining issue. The agency has denied requests from ConocoPhillips, Occidental Petroleum and Exxon Mobil to throw out shareholder motions for voting on detailed emission-reduction plans and other climate issues. READ MORE

Excerpt from Politico's Morning Energy: CLIMATE FINANCE EO: Biden is brewing up a plan to protect public and private financial assets from climate change, Bloomberg’s Jenny Leonard reports, and an executive order launching the strategy is close to completion. Here’s how it would work, according to Jenny:

“The strategy would be drafted by National Economic Council director Brian Deese and National Climate Advisor Gina McCarthy in coordination with Treasury Secretary Janet Yellen and the Office of Management and Budget.”

“Treasury would also work with members of the Financial Stability Oversight Council to share climate-related financial-risk data and issue a report within six months on efforts to address such risks within the respective purviews of each independent regulatory agency. Members of FSOC include the heads of the Federal Reserve and the Securities and Exchange Commission.”

U.S. climate envoy John Kerry has been prodding the financial industry to put its money where its mouth is in climate-friendly finance. A climate finance executive order was expected as part of that push, Pro’s Zack Colman reported last month. READ MORE