Politics Regulators must act to protect financial system from climate risk: report
Biden sees American credibility on the line as he races to lock down climate action ahead of Glasgow
President Joe Biden wanted the stakes to be perfectly clear when he sat down with nine liberal Democrats in the Oval Office Tuesday to discuss ongoing legislative negotiations. © Al Drago/Pool/Getty Images WASHINGTON, DC - APRIL 22: U.S. President Joe Biden delivers remarks during a virtual Leaders Summit on Climate with 40 world leaders at the East Room of the White House April 22, 2021 in Washington, DC. President Biden pledged to cut greenhouse gas emissions by half by 2030.
Federal regulators must act quickly to require banks to insulate themselves and their customers against the potentially ruinous financial effects of both climate change and the energy transition,by Public Citizen and Americans for Financial Reform found.
The report is a wish list of policies that the two groups are putting out in advance of a key report on climate risk in the financial system from the Financial Stability Oversight Council (FSOC), which was mandated by.
Equilibrium/Sustainability — Presented by Southern Company — Ivory poaching changes evolution of elephants
Today is Friday. Welcome to Equilibrium, a newsletter that tracks the growing global battle over the future of sustainability. Subscribe here: thehill.com/newsletter-signup. Decades of ivory poaching across Mozambique have led to the evolution of tuskless elephants - a stark example of how humans are reshaping the face of nature, The Guardian reported.In a quest to understand why female elephants in Gorongosa national park were often born without tusks, researchers discovered that a once-rare genetic mutation had become common - and that elephants had effectively undergone genetic engineering via ivory poaching, according to The Guardian.
In that report - which was originally scheduled for November but has been moved up to next week - Treasury Secretary Janet Yellen, who serves as chair of the FSOC, is expected to recommend some form of mandatory climate risk disclosure.
This is the idea, echoed by Securities and Exchange Commission Chairman Gary Gensler and Sen. Elizabeth Warren (D-Mass.), that banks and publicly traded companies should have to notify investors and regulators about how exposed they are to the effects of both climate change and the potential consequences of a rapid loss of confidence in fossil fuels.
But disclosure alone is not enough to avoid the possibility of an "Emperor's New Clothes moment" of sudden disenchantment with fossil fuels that could crash the financial system, said report co-author Yevgeny Shrago of Public Citizen.
Daily on Energy: High energy prices weigh down Biden
Subscribe today to the Washington Examiner magazine and get Washington Briefing: politics and policy stories that will keep you up to date with what's going on in Washington. SUBSCRIBE NOW: Just $1.00 an issue! © Provided by Washington Examiner DOE Default Image - July 2021 PREOCCUPIED BY ENERGY PRICES: President Joe Biden gave the public a look last night at how high energy prices are weighing on him and complicating his agenda to limit the use of fossil fuels. He’s also acknowledging there’s little he can do about it, at least in the short-term, meaning gasoline prices won’t come down until next year.
The Biden administration has announced plans for the United States to reach net-zero emissions by 2050 amid a groundswell of investment and enthusiasm in industry and investment for electric vehicles and renewable energy that threatens a sudden loss of confidence in fossil fuels, Shrago noted.
"If we need to stop burning fossil fuels by 2050, you don't want to own them in 2049, and if not in 2049, then probably not in 2048, and so on."
"So will there be a moment where everyone goes, 'All these [fossil fuel] reserves are worthless, there's no reason to keep producing them,' where it triggers a fire sale, drives assets down and drives companies out of business? That can underpin a lot of exposure that banks have."
Disclosure of that risk is critical, Shrago said - but it is no more sufficient to solve the underlying process than it was during the lead up to the 2008 financial crisis.
Biden can’t afford to repeat Obama’s mistakes on climate policy
It’s not too late for Democrats to go big on climate change. But it won’t be easy, and there’s no margin for error.One of the most impactful climate policies that Congress has ever considered, the clean electricity payment program (CEPP), is on the chopping block. Sen. Joe Manchin (D-WV) says he will not support a bill that penalizes coal and natural gas for the outsized role they play in US pollution. Democrats can’t pass their budget bill, the Build Back Better Act, without his support, and its size and scope has been shrinking.
During the frenzy of trading in tainted mortgage-backed securities and credit default swaps that characterized that bubble, actors across the financial system took actions they knew to be risky and potentially destructive to the system as a whole - because those actions were still in their temporary or personal self-interest, Shrago said.
"In 2008, more disclosure wasn't the answer - we needed more oversight of risk taking," Shrago said.
As such, the report urges federal regulators to follow in the steps of those in the United Kingdom and European Union and require American banks to conduct "climate stress tests," carefully auditing their portfolios to various potentially disastrous scenarios, like major natural disasters or a sudden loss of confidence in fossil fuels, and begin to take steps to become more resilient to them.
For example, if they are going to continue investing in fossil fuels, banks might defray that risk with greater investment in renewables to reduce their vulnerability to "transition risk."
Over the long term, Public Citizen and Americans for Financial Reform want the regulators to require banks to use that information as the foundation for a more forward-looking, resilient financial system.
How Climate Change May Increase Global Conflicts
The connection between climate change and conflict poses an outsized threat to countries in the global south, experts say.And if they do not, the increased risk of conflict or even war will be among the many threats that climate change and global warming may pose.
As such, some of the steps they recommend go against the immediate financial interest of shareholders and management but which could insulate taxpayers - and the system as a whole - from potential collapse.
One such longer-term recommendation is to raise the requirement for how much capital banks making investments deemed to be risky must have on hand - and that they do this by issuing more shares, not taking in more deposits, which is to say debt.
Neither management nor shareholders like to do this because it dilutes share price Shrago said - another place where short- and long-term incentives are out of alignment.
Banks must "make sure that if they're holding more risky assets, they're raising money from shareholders to cover those riskier assets, so if they are wiped out, the shareholders are the ones who lose and not debt holders - who are which implicitly depositors, which is implicitly the U.S. government" which guarantees those deposits through the Federal Deposit Insurance Corp., Shrago said.
Biden heads into international climate negotiations with a weak hand .
American politics are undermining the global fight against climate change — again.It’s almost exactly a year since the Trump administration officially, though temporarily, withdrew the US from the 2015 Paris climate agreement. Since Biden’s inauguration, the new administration has had nine months to piece together a plan for the climate negotiations in Glasgow that shows the US is making concrete progress on its domestic pollution.