The pressure on U.S. financial regulators to address climate risk is growing as investors and regulators overseas — and others at the state level — continue to forge ahead.
"We are seeing great momentum every day from companies, investors and regulators, but it's just not fast enough. We have to accelerate the rate of change," said Steven Rothstein, Boston-based managing director of the Ceres Accelerator for Sustainable Capital Markets, a Ceres initiative advocating for capital market policies to address global climate change.
"I have had hundreds of conversations with regulators at the federal and state level. We have seen a lot more interest and momentum at the state level," Mr. Rothstein said.
Recent examples include the New York Department of Financial Services dictating that New York-based insurers integrate considerations of climate risk into their governance frameworks, risk management processes and business strategies. The agency also signed the United Nation's Principles for Sustainable Insurance.
In Washington state, the insurance commissioner convened an October summit on regulating climate change as a systemic financial risk.
And in November, the Federal Reserve Bank of Richmond is hosting a similar Climate Change Economics summit, and bank regulators are paying closer attention, advocates say. A new report from Ceres warns that more than half of major U.S. banks' syndicated lending is exposed to climate risk, yet that exposure is not fully disclosed.
Summits are helpful, but institutional investors want U.S. financial regulators to see mandatory climate risk disclosure as part of their mandate to protect U.S. market stability and competitiveness. A group of investors with nearly $1 trillion in assets stressed that point in a July letter to all U.S. regulators, including the heads of the Federal Reserve and the Securities and Exchange Commission.
Climate risk "poses a systemic threat to financial markets and the real economy, with significant disruptive consequences on asset valuations and our nation's economic stability," warned the 72 signatories, including the $262.5 billion California State Teachers' Retirement System; $211.2 billion New York City Retirement Systems; $210.5 billion New York State Common Retirement Fund; $56.1 billion Maryland State Retirement & Pension System; and the $3 billion Seattle City Employees' Retirement System.
Another advantage of having a uniform disclosure framework for U.S. companies, said the SEC's investor advisory committee in May, is that it will let the SEC take control "before other jurisdictions impose disclosure regimes on U.S. issuers and investors alike."