WASHINGTON — Climate change is an “emerging threat” to the stability of the U.S. financial system, and the Biden Administration should be more aggressive in taking regulatory action to prevent climate change from further hurting the economy and markets, according to a new report from the Financial Stability Oversight Council (FSOC).
The report addresses some of the risks that rising temperatures and seas pose to the economy and suggests banks and other financial institutions will need to change the types of investments they are making.
As CUToday.info already reported here, Washington State’s regulator is already urging state-chartered banks and credit unions to “integrate climate change risks into their governance, risk management and strategic plans.”
The FSOC report was released at the same time President Biden and senior administration officials prepare to attend the U.N. Climate Change Conference in Glasgow, as well as at the same time Biden’s climate agenda has stalled in Congress.
The report from FSOC, which is led by the Treasury Janet Yellen and includes leaders from the major financial regulatory agencies, “portrayed the financial threat of climate change in stark terms,” noted the New York Times, summing up the report as stating, “Higher temperatures are leading to more natural disasters, such as hurricanes, wildfires and floods. These, in turn, are resulting in damaged property, lost income and disruptions to business activity that threaten to alter how assets, such as real estate, are valued.”
Flip Side Risk
At the same time, the report cautions that move away from fossil fuels could cause a sudden drop in the price of stocks and other assets tied to oil, gas, coal and other energy companies, or sectors that rely on them such as carmakers and heavy manufacturing.
“The financial sector may experience credit and markets risks associated with loss of income, defaults and changes in the value of assets,” the report said, adding that liquidity and legal risks are also concerns.
The FSOC report further warns that low-income communities and people of color are and will be disproportionately at risk from climate change because they lack the resources to protect their properties and weather a loss of income. This dynamic threatens to exacerbate income inequality in the United States, the report said.
The report makes a series of broad recommendations, but does not offer specific timelines or milestones that financial regulatory agencies should meet.