Financial regulation an essential tool for fighting climate crisis

WASHINGTON, D.C. — Reform and regulation in support of financial stability are essential elements of the Biden administration’s whole-of-government approach to fighting climate change in an equitable way, according to a new report offering detailed recommendations for U.S. regulators ahead of the Financial Stability Oversight Council’s first-ever meeting to discuss climate risk.

The “Climate Roadmap for U.S. Financial Regulation,” from Americans for Financial Reform Education Fund and Public Citizen, outlines how Biden appointees can protect investors, workers, and the economy from the escalating risks caused by the climate crisis, while also shifting the regulatory framework towards one that promotes the transition to a low-carbon future. The roadmap was developed in partnership with ClimateWorks Foundation, and draws on contributions from dozens of leading financial reform experts.

“Addressing climate risk has become a critical part of financial regulators’ missions, and they have existing statutory obligations to act on it,” according to the report. “The question is not whether the government should take assertive action to use financial regulation to reduce the massive risks posed by climate change on the financial system, investors, workers, and the economy, but how to do so quickly, effectively, and sustainably. Regulators should use all tools at their disposal, including mandatory disclosures, ensuring investor rights, modernizing fiduciary duties, and a broad suite of supervisory and prudential tools.”

“Wall Street is gambling against our future and putting the health of our communities and economy at grave risk. Given the urgency of the climate crisis, we can’t afford continued inaction,” said David Arkush, managing director of Public Citizen’s Climate Program. “Financial regulators already have an obligation to protect us from Wall Street’s risky bets and this roadmap is designed to help them act immediately, using all the tools currently at their disposal.”

“Financial regulation is a key piece of the whole-of-government approach necessary to tackling the climate crisis, and realizing the level of economic transformation needed to avert disaster for people and for the planet,” said Alex Martin, senior policy analyst at Americans for Financial Reform Education Fund. “The regulators need to act swiftly on changing how climate risks are reported, accounted for, and considered in supervision, and the ways in which investors are permitted, and required, to take climate impacts into account.”

The 35-page report notes that racial equity and justice need to be a central element in regulators’ approach to climate risk. And that effective mitigation of climate risk requires effective regulation of finance generally, including ensuring that rules cover all financial actors, not just some of them.

The report is a comprehensive compendium of actions the federal government can take, starting with decisions on key presidential appointments and staff. It provides an extensive discussion of how banking and insurance regulators and supervisors across many federal agencies can do their part. It also outlines a framework for sensible capital market regulation that protects investors from unsustainable investments.

“The transition to a zero carbon economy is inevitable as, unfortunately, are grave climate impacts. Oversight of the financial system needs to catch up to this reality, and climate financial reforms will position the market and the economy to thrive in the years to come,” said Ilmi Granoff, director of the Finance Program at ClimateWorks Foundation. “The roadmap shows that this can be done, and how it can be done, in detail. Internationally, the U.S. should lead.”

Read the report here.