U.S. financial regulators can and should do more to protect capital markets from systemic risk posed by climate change, according to a report released Monday by Ceres Accelerator for Sustainable Capital Markets.
The report, "Addressing Climate as a Systemic Risk: A call to action for U.S. financial regulators," assesses the compounding impacts of the climate crisis on U.S. financial markets. "The COVID-19 pandemic has revealed just how vulnerable our interdependent and multilayered financial market is to the impacts of sudden and disruptive events. This report makes clear that it is the job of U.S. financial regulators to protect capital markets from the impacts of the climate crisis and provides a carefully curated set of recommended actions for doing that job and doing it well," said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, in a statement.
In addition to state regulators, seven separate federal financial regulatory agencies have the authority to take some of the 50 actions recommended in the report, which also offers steps taken by other countries' regulators.
The report's recommended federal actions are directed at the Federal Reserve Bank, the Securities and Exchange Commission, Commodity Futures Trading Commission, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Financial Stability Oversight Council and Federal Housing Finance Agency.
Categories for action include:
- Affirming climate change as a systemic threat to capital markets and researching the aspects of the economy they are responsible for safeguarding.
- Prudential supervision that plans for a changing climate, including climate stress testing of financial institutions.
- Mandating comparable and reliable climate risk disclosure from companies and financial intermediaries, including from lending and investment activities.
- Interagency coordination and global collaboration.
"U.S. financial regulators are far behind their counterparts in China, Europe, the U.K., South America and Canada, who are already responding to climate change as a systemic risk and are taking steps to protect their markets," said the report, which estimated that climate-related extreme weather events since 1980 have cost the U.S. more than $1.78 trillion, and more than $500 billion in economic losses between 2015 and 2019. Without mitigation, climate change will reduce GDP by 5% to 20%, it projects.