Senators Question Treasury on Efforts to Address Economic Risks of Climate Change
Commentary by Steven Lofchie
Senators Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Martin Heinrich (D-NM), Ed Markey (D-MA), Sheldon Whitehouse (D-RI) and Jeff Merkley (D-OR) questioned Treasury on its efforts to "[leverage] finance and financial risk mitigation to confront the threat of climate change."
In a Letter to Treasury Secretary Janet Yellen and Treasury Climate Counselor Ethan Zindler, the Senators emphasized the "key role" Treasury plays in assessing and addressing the impact of climate change on the economy. The Senators urged Treasury to prioritize the effects of climate change on the U.S. insurance industry in particular. The Senators asked for information by October 12, 2023 on Treasury's climate efforts and the goal of achieving a "net-zero emissions future." The Senators requested information on:
- the changes in approach that Mr. Zindler will make to implement President Biden’s Executive Order on climate-related financial risk;
- development of "high quality" climate scenario analysis exercises by Financial Stability Oversight Council ("FSOC") members;
- when the Office of Financial Research "Climate Data and Analytics Hub" – which was intended to provide access to public climate and financial data, computing tools and visualization software – will be made accessible to all FSOC members;
- how Treasury addresses FSOC members' regulated entities that "carry uneven climate-related risk responsibilities," such as the burden generated by large institutions that drive risk "disproportionately" that falls on small financial institutions;
- the extent to which the economy is prepared for predicted systemic risks as a result of climate change; and
- how Treasury plans to (i) address "transparency and integrity issues" within voluntary carbon credit markets and in the context of its recently issued net-zero transition guidance (see related coverage) and (ii) make clear that the transition plans are an "effective risk manage tool that can promote financial stability."
Commentary
The Senators presume that financial institutions will lose a lot of money in a "high quality" climate crisis scenario. In a recent speech, the Vice Chair of the FDIC stated, "In the U.S., there is no record of banks ever failing because of climate-related events, and it has been extremely rare for banks to even suffer meaningful losses." The Vice Chair went on to say that climate "risk is much lower than many other risks that have gotten much less attention over the past couple years, including, as an example, prior to March, the impact of rising rates."
Admitting that inflation is a huge and obvious risk to the banking system means accepting some responsibility for causing that risk and some obligation to deal with it, while climate risk carries none of that burden for the legislators.