House lawmakers debate legitimacy of climate-related financial risk

Lawmakers pressed financial regulators on the legitimacy of climate-related financial risk Tuesday, as Republicans in the House Financial Services Committee continue to hold a series of ESG-related hearings.

"On climate policy, driven by Biden administration directives, regulators are choosing politicized policymaking, putting their independence at risk, and giving in to the temptation to exaggerate our understanding of climate change," Subcommittee Chairman Andy Barr, R-Ky., said in his opening statement before the Subcommittee on Financial Institutions and Monetary Policy.

Several Republicans at the hearing Tuesday expressed doubt that taking action to address climate-related financial risks is necessary, as many called it a result of political influence. However, federal regulators pushed back on such claims.

"As Chair Powell stated earlier this year, the Federal Reserve is not a climate policymaker," said Michael S. Gibson, director of supervision and regulation at the Federal Reserve Board of Governors. "The Federal Reserve's supervisory responsibilities are focused on understanding and mitigating the potential impact of climate change on supervised banks."

Mr. Gibson told lawmakers that the Fed must manage all material risks, including climate change, and weaknesses in addressing climate-related financial risks could negatively impact a bank's safety and soundness.

Sarah Benatar, the treasurer of Coconino County, Arizona, was adamant that managing public dollars "necessarily includes considering all forms of risk, including climate risk," which she said is made more difficult by anti-ESG legislation.

For local and state treasurers facing such legislation across the country, "it has increased their costs, and it has also reduced the number of companies they can do business with," Ms. Benatar told Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee.

GOP officials across the U.S. have spearheaded anti-ESG efforts, with North Carolina becoming one of the most recent states to ban ESG considerations in the state treasurer's office.

After taking over the committee earlier this year, committee Republicans launched a working group to combat ESG proposals. Meanwhile, Democrats on the committee formed a Congressional Sustainable Investment Caucus in January, co-chaired by Reps. Sean Casten, D-Ill, and Juan Vargas, D-Calif., which is set to inform policy related to ESG investing.

In May 2021, President Joe Biden issued an executive order directing federal agencies to assess and mitigate financial risks related to climate change. Then, in October of that year, the Federal Stability Oversight Council identified climate change as an emerging and increasing threat to U.S. financial stability.