While Trump Commission Warns of Climate Risk to Financial System, Recommendations 'Fall Short of Direct, Immediate Action' Required

In this long exposure photo, the LNU Lightning Complex fire continues to burn in the ridges near Chemise Road in Healdsburg, California on August 21, 2020. (Photo: Ray Chavez/MediaNews Group/The Mercury News via Getty Images)

While Trump Commission Warns of Climate Risk to Financial System, Recommendations 'Fall Short of Direct, Immediate Action' Required

"Western states are literally burning up as this report is released," said one climate campaigner. "Its recommendations are minimal."

Especially considering that President Donald Trump and his appointees have spent the past few years serving corporate polluters by rolling back dozens of environmental regulations, climate campaigners on Wednesday welcomed a new federal report about how the human-caused planetary emergency endangers the U.S. financial system but also warned that its recommendations fall short of the ambitious action necessary to adequately address the threat.

"Its solutions are mostly more study and info. That's not good enough."
--David Arkush, Public Citizen

"There's something backwards about a report that talks about the threat climate change poses to financial institutions, but fails to mention the threat financial institutions pose to the climate," Amy Gray of Stop the Money Pipeline, a campaign launched earlier this year, said in a joint statement. "As long as banks, insurance companies, asset managers, and institutional investors continue to pour money into fossil fuels and deforestation, the climate emergency will continue to intensify."

"With its clear warnings about the risks climate change poses to U.S. financial markets, this report is certainly a step forward, but with much of the western United States currently on fire, now is a moment for leaps and bounds," Gray added. "If financial institutions won't take action to stop the money pipeline fueling the climate crisis, regulators must. The next step from the federal government on climate risk can't be another report: it needs to be clear action to address the crisis."

The new report, entitled Managing Climate Risk in the U.S. Financial System (pdf), was requested last year by the Commodity Futures Trading Commission (CFTC) and released Wednesday by its Climate-Related Market Risk Subcommittee. That panel is composed of various experts from financial firms like JPMorgan Chase, Morgan Stanley, and S&P Global; nonprofit groups such as the Environmental Defense Fund and World Resources Institute; and companies in relevant industries, from the major food corporation Cargill to fossil fuel giants BP and ConocoPhillips.

"The central message of this report is that U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks," says the executive summary, calling for close collaboration with the private sector.

"At the same time, the financial community should not simply be reactive--it should provide solutions," the report continues. "Regulators should recognize that the financial system can itself be a catalyst for investments that accelerate economic resilience and the transition to a net-zero emissions economy."

Rachel Cleetus, lead economist and policy director for the Climate and Energy Program at the Union of Concerned Scientists (UCS), warned in a statement about the report's findings that "if left unaddressed, these risks--which include flooding exacerbated by sea level rise and heavy rainfall, extreme heat, and worsening wildfires--will escalate untenably and harm our prosperity and well-being today and into the future."

"Markets for agricultural commodities, real estate, insurance, and mortgages are among those highly exposed to these risks, as are the supply chains of many companies," she noted. "Liability risks for fossil fuel companies, whose products are the main drivers of climate change, are mounting as cities, counties, and states file lawsuits against these companies, including ExxonMobil and Chevron, to recover the costs of climate damages and fraud."

The New York Timesreported Wednesday on the significance of the CFTC panel's warnings and 53 recommendations, noting that the report concludes "a world wracked by frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system."

Those observations are not entirely new, but they carry new weight coming with the imprimatur of the regulator of complex financial instruments like futures, swaps, and other derivatives that help fix the price of commodities like corn, oil, and wheat. It is the first wide-ranging federal government study focused on the specific impacts of climate change on Wall Street.

Perhaps most notable is that it is being published at all. The Trump administration has suppressed, altered, or watered down government science around climate change as it pushes an aggressive agenda of environmental deregulation that it hopes will spur economic growth.

CFTC Commissioner Rostin Behnam, a Democrat who first proposed the endeavor, said in a statement Wednesday that the "incredibly thorough report... has far exceeded expectations" and thanked the subcommittee members for "their work on this groundbreaking effort during unprecedented times."

"As we've seen in the past few weeks alone, extreme weather events continue to sweep the nation from the severe wildfires of the West to the devastating Midwest derecho and damaging Gulf Coast hurricanes," Behnam said. "This trend--which is increasingly becoming our new normal--will likely continue to worsen in frequency and intensity as a result of a changing climate."

"U.S. regulators must mandate that U.S. financial institutions disclose and phase out their climate impact with an urgency that matches the scale of the crisis."
--Jason Opena Disterhoft, RAN

"Beyond their physical devastation and tragic loss of human life and livelihood, escalating weather events also pose significant challenges to our financial system and our ability to sustain long-term economic growth," he added. "Now, with this report in hand, policymakers, regulators, and stakeholders can begin the process of taking thoughtful and intentional steps toward building a climate-resilient financial system that prepares our country for the decades to come."

Jason Opena Disterhoft, climate and energy senior campaigner at Rainforest Action Network (RAN), was far more critical and pointed out the financial system's contributions to the climate crisis.

"The world's top four fossil banks are all headquartered in the U.S., responsible for 30% of global fossil lending and underwriting since Paris," the RAN campaigner explained, referencing the 2015 global agreement. "If business as usual continues, any climate crash would largely be a U.S. financial product. U.S. regulators must mandate that U.S. financial institutions disclose and phase out their climate impact with an urgency that matches the scale of the crisis."

Tyson Slocum, director of Public Citizen's Energy Program and a voting member of the CFTC's Market Risk Advisory Committee, praised the CFTC report for underscoring "the urgency and scope of the problems that climate change poses to the U.S. financial system" but also raised concerns about its policy proposals. As Slocum put it:

While we applaud the work contained in [the report], the recommendations fail to promote an effective CFTC authority that has gone unused: adjusting capital and margin requirements to properly reflect climate risks. Instead, the subcommittee conditions the "review" of capital and margin requirements only after regulators undertake "a program of research."

The evidence already demonstrates that climate change poses systemic risk today. The report's recommendations to other regulators are similarly stunted. Calls for further study dangerously delay needed action.

Many of the report's suggestions--including adopting widespread corporate disclosure of climate risks--are important and admirable, but fall short of direct, immediate action financial regulators must take to mitigate the impacts of climate change on the financial system.

David Arkush, managing director of Public Citizen's Climate Program, delivered a similar response in a series of tweets Wednesday:

"We need action, now," Arkush added in a statement. "U.S. financial regulators have the authority to help mitigate the climate crisis, and they need to use it. The best way to protect anything from climate change, whether people in wildfire or flood zones or giant banks, is to stop climate change."

Collin Rees of Oil Change International emphasized that "western states are literally burning up as this report is released. Its recommendations are minimal; adopting them and going much further must be a priority of the next administration."

Directing a message to the Democratic Party's 2020 presidential nominee, Rees said that "comprehensive climate policy must include regulating the financial system, and it's critical that the people in charge of Joe Biden's policy aren't Wall Street and BlackRock insiders who've been driving the climate crisis for decades."

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