Treasury Department Report Important First Step but Fails to Fully Bring

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WASHINGTON (October 22, 2021)—Following a review of federal banking practices, the Financial Stability Oversight Council (FSOC) released its recommendations yesterday on how regulators can ensure the financial system is adequately prepared for the impending onslaught of climate change impacts. The report, which was mandated by a May 2021 White House Executive Order, was led by Treasury Secretary Janet Yellen and her department.

Below is a statement by Dr. Rachel Cleetus, the policy director for the Climate and Energy Program at the Union of Concerned Scientists (UCS).

“The Treasury Department’s report is an important first step to acknowledge the growing risks of climate change to our financial system. However, more action is needed to implement widespread, transformational change across the U.S. financial sector to account for rapidly worsening climate impacts and the urgent need to orient toward a net zero economy.

“The science is clear that the accelerated warming of our planet is primarily driven by burning fossil fuels. Oil, gas, and coal companies have designed and funded deliberate campaigns to spread disinformation about the harm their products cause and delay climate action. At the same time, none of their business pursuits could have been possible without the continued backing of banks and asset managers. The FSOC’s recommendation for enhanced climate risk disclosure can help provide transparency of companies’ fossil fuel investments, but without assertive disincentives to curtail fossil fuel project financing, policymakers are leaving taxpayers and investors on the hook for the inevitable financial fallout. This fallout will be most costly for communities of color and low- and fixed-income households, which tend to be disproportionately harmed by financial crises and are among the most vulnerable to climate impacts.

“The bottom line is that we need to make a sharp turn away from fossil fuels within this decade if we are to have a fighting chance to meet our climate goals, and financial regulators must play their part in ensuring that. Without measures to create a shift away from bankrolling fossil fuel projects, our financial institutions will remain stuck with a 20th century system that’s ill-suited for our 21st century world, and they will prolong our dependence on polluting fossil fuels.”

Dr. Cleetus testified at a hearing on June 30, 2021, held by the House Financial Services Subcommittee on Consumer Protection and Financial Institutions entitled “Addressing Climate as a Systemic Risk: The Need to Build Resilience within Our Banking and Financial System.”

UCS has previously submitted comments to the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Housing Finance Agency to highlight each body’s role in ensuring that the risks of climate change are accounted for. UCS also endorsed congressional action on these issues, including organizing a letter of support for the Climate Risk Disclosure Act of 2021 introduced by Rep. Sean Casten, D-IL.

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