Legislation to reduce financial impact of climate change gains support

Legislation introduced by U.S. Sen. Diane Feinstein (D-CA) and U.S. Rep. Sean Casten (D-IL) earlier this month that seeks to mitigate risks from climate change within the financial system has gained support from a coalition of financial organizations.

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The Addressing Climate Financial Risk Act, S. 588/H.R. 1549, would establish an advisory committee on climate financial risk within the Financial Stability Oversight Council (FSOC). The committee would consist of experts in climate science, climate economics and climate financial risk.

The committee would advise FSOC on how to improve the ability of the U.S. financial regulatory system to identify and mitigate climate risk. In addition, it would require federal bank and credit union regulatory agencies to update their supervisory guidance to include climate risk and develop a strategy to identify and mitigate climate financial risk.

“Our bill draws broad support because it’s becoming increasingly clear that climate change poses a serious threat to our financial system,” Feinstein said. “Reducing our carbon emissions is the best way to reduce that threat, but as we work toward that goal, we must also prepare for the financial strain created by climate change.”

Among other provisions, the bill would require FSOC to specify how it will incorporate climate risk into its decisions about whether to designate risky non-bank financial institutions as requiring additional oversight by the Federal Reserve. Further, it would require the Federal Insurance Office (FIO) to produce a report on how to modernize and improve climate risk insurance regulation. Finally, the bill says U.S. regulators should work with international regulators on climate financial risk to the extent possible.

“Just because we’re in the middle of one economic crisis doesn’t mean we can afford to ignore the next one,” Casten said. “As we learned from 2008, financial crises have far-ranging consequences. It is imperative that Federal financial regulators assess the risk and plan to combat it.”

The bill has drawn the support of several organizations, including Ceres, National Association for Latino Community Asset Builders, National Conference on Public Employee Retirement Systems, National Whistleblowers Center, Public Citizen, Sierra Club, Union of Concerned Scientists, UN Principles for Responsible Investment, California Public Employees’ Retirement System (CalPERS), California State Teachers’ Retirement System, New York State Common Retirement Fund, Edison International, PG&E Corporation, and Sempra Energy.

“Investors need federal regulators to provide clear guidance to understand the climate risks to the financial system and potential economic opportunities,” Marcie Frost, CEO of CalPERS, said. “Our ability to invest wisely and pay retirement benefits over decades depends on it. That’s why Senator Feinstein and Representative Casten’s bill is so important. It gives authorities a powerful tool that will help protect investors like CalPERS from climate risks that threaten our portfolio companies and the long-term sustainability of our fund.”