Washington—Senator Dianne Feinstein (D-Calif.) and Representative Sean Casten (D-Ill.) today introduced the Addressing Climate Financial Risk Act, a bill that would improve the ability of federal regulators to understand and mitigate risks from climate change within the financial system.
Climate change is increasing the frequency and severity of wildfires, flooding, droughts and other natural disasters and extreme weather events. The damage and risk generated by these events – in addition to changes needed to transition to a cleaner economy – threaten to severely disrupt real estate values in high-risk areas, dramatically change whole sectors of the economy and make insuring against risk increasingly unaffordable. These trends, in turn, threaten the stability of the U.S. financial system, which is why it is so important to ensure financial regulators approach them in a comprehensive way.
“We can’t ignore the threat climate change poses to our financial system any longer,” said Senator Feinstein. “While we look for ways to keep reducing our carbon emissions, we must also prepare for the financial strain of climate change. Federal financial regulators need to understand this risk and develop a plan for ways to reduce it. The cost of doing nothing is too high.”
“Just because we’re in the middle of one economic crisis doesn’t mean we can afford to ignore the next one – especially a crisis that’s already ravaged communities from California to Texas and is projected to cost up to twenty trillion dollars a year,” said Representative Casten. “As we learned from 2008, financial crises have far ranging consequences. It is imperative that Federal financial regulators assess the risk and plan to combat it. The time to safeguard our financial system against rapidly accelerating climate risk was yesterday. The next best time is now.”
“This is an urgent, all hands on deck moment,” said Steven M. Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets. “U.S. financial regulators must immediately address the systemic risk climate change poses to our financial system and take up the reigns of global leadership. This critical legislation enables that leadership while keeping our economy and our people out of harm’s way.”
In the Senate, the bill is cosponsored by Senators Catherine Cortez Masto (D-Nev.), Alex Padilla (D-Calif.), Brian Schatz (D-Hawaii), Elizabeth Warren (D-Mass.), Martin Heinrich (D-N.M.) and Jeff Merkley (D-Ore.).
In the House, the bill is cosponsored by Representatives Kathy Castor (D-Fla.), Nydia M. Velázquez (D-N.Y.), Emanuel Cleaver, II (D-Mo.) and Mike Levin (D-Calif.) and Delegate Eleanor Holmes Norton (D-DC).
In addition to Ceres, the bill is supported by the National Association for Latino Community Asset Builders, National Conference on Public Employee Retirement Systems, National Whistleblowers Center, UN Principles for Responsible Investment, Sierra Club, Union of Concerned Scientists, California Public Employees’ Retirement System, California State Teachers’ Retirement System, New York State Common Retirement Fund, Edison International, PG&E Corporation and Sempra Energy.
Provisions of the Addressing Climate Financial Risk Act:
- Establish an advisory committee on climate financial risk: The bill would establish a permanent committee on the Financial Stability Oversight Council (FSOC) made up of experts in climate science, climate economics and climate financial risk. The committee would advise FSOC, including in producing a report that would include recommendations on how to improve the ability of the U.S. financial regulatory system to identify and mitigate climate risk.
- Update supervisory guidance on climate risk: The bill would require federal bank and credit union regulatory agencies to update their supervisory guidance to include climate risk and to develop a strategy to identify and mitigate climate financial risk.
- Update non-bank designation guidance: The bill would require FSOC to specify how it will incorporate climate risk into its decisions about whether to designate risky non-bank financial institutions as requiring additional oversight by the Federal Reserve.
- Require a Federal Insurance Office (FIO) report on insurance regulation and climate risk: The insurance industry is more directly affected by climate risk than other areas of the financial system. This provision would require the FIO to produce a report on how to modernize and improve climate risk insurance regulation in the United States. The report would be modeled on FIO’s 2013 report on modernizing state insurance regulation.
- Improve global coordination: Climate change is a global problem that requires international coordination. This provision would provide a sense of Congress that U.S. financial regulators should join the Network for Greening the Financial System, formally join the Basel Committee’s Task Force on Climate-Related Risk and work with international regulators on climate financial risk to the extent possible.