House lawmakers debate legitimacy of climate-related financial risk
Several Republicans at the hearing Tuesday expressed doubt that taking action to address climate-related financial risks is necessary, as many called it a result of political influence. However, federal regulators pushed back on such claims. “As Chair Powell stated earlier this year, the Federal Reserve is not a climate policymaker,” said Michael S. Gibson, director of supervision and regulation at the Federal Reserve Board of Governors. “The Federal Reserve’s supervisory responsibilities are focused on understanding and mitigating the potential impact of climate change on supervised banks.” Mr. Gibson told lawmakers that the Fed must manage all material risks, including climate change, and weaknesses in addressing climate-related financial risks could negatively impact a bank’s safety and soundness. Sarah Benatar, the treasurer of Coconino County, Arizona, was adamant that managing public dollars “necessarily includes considering all forms of risk, including climate risk,” which she said is made more difficult by anti-ESG legislation. For local and state treasurers facing such legislation across the country, “it has increased their costs, and it has also reduced the number of companies they can do business with,” Ms. Benatar told Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee. GOP officials across the U.S. have spearheaded anti-ESG efforts, with North Carolina becoming one of the most recent states to ban ESG considerations in the state treasurer’s office. After taking over the committee earlier this year, committee Republicans launched a working group to combat ESG proposals. Meanwhile, Democrats on the committee formed a Congressional Sustainable Investment Caucus in January, co-chaired by Reps. Sean Casten, D-Ill, and Juan Vargas, D-Calif., which is set to inform policy related to ESG investing. In May 2021, President Joe Biden issued an executive order directing federal agencies to assess and mitigate financial risks related to climate change. Then, in October of that year, the Federal Stability Oversight Council identified climate change as an emerging and increasing threat to U.S. financial stability.
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”