This Ceres report outlines how and why U.S. financial regulators, who are responsible for protecting the stability and competitiveness of the U.S. economy, need to recognize and act on climate change as a systemic risk. It provides more than 50 recommendations for key financial regulators to adopt, including the Federal Reserve Bank (the Fed), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CTFC), state and federal insurance regulators, the Federal Housing Finance Agency (FHFA), and the Financial Stability Oversight Council (FSOC).
Systemic risks have the potential to destabilize capital markets and lead to serious negative consequences for financial institutions and the broader economy. Under this definition, climate change, like the current COVID-19 crisis, is indisputably a systemic risk. Its wide-ranging physical impacts, combined with expected transitions to a net-zero carbon economy and other socio-economic ripples, are likely to manifest in both cumulative and unexpected ways and present clear systemic risks to U.S. financial markets -- and the broader economy. Left unmanaged, these risks could have significant, disruptive consequences on asset valuations, global financial markets and global economic stability.
Given the ongoing response to the COVID-19 pandemic, the role of financial regulators is more prominent than ever. While financial regulators are taking critical actions to support the U.S. economy in response to this immediate crisis, it is imperative that their efforts do not inadvertently worsen the impacts of climate change.
This Ceres report outlines how and why U.S. financial regulators, who are responsible for protecting the stability and competitiveness of the U.S. economy, need to recognize and act on climate change as a systemic risk. It provides more than 50 recommendations for key financial regulators to adopt, including the Federal Reserve Bank (the Fed), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CTFC), state and federal insurance regulators, the Federal Housing Finance Agency (FHFA), and the Financial Stability Oversight Council (FSOC).
Ceres knows that climate change is the biggest sustainability issue of our time, affecting everything from our financial markets, to our political security to our very existence on earth. For over three decades, Ceres has worked with companies, investors and policy makers to drive the consideration of climate change as a financial risk, and foster the uptake of climate solutions. We also believe that legislative action on climate change – such as a carbon price – is necessary to move the U.S. economy towards a competitive and prosperous net-zero carbon future.
But while policymakers at the federal, state and global levels need to take the lead in tackling the climate crisis, U.S. financial regulators themselves have critical roles to play in keeping a now-weakened economy resilient in the face of ongoing and future climate shocks. Rather than standing back, they should seize the opportunity in this moment of potential economic transformation to join global peers and develop a playbook for climate action. With global emissions and average temperatures still rising, watching and waiting are no longer responsible options, and will in fact guarantee the worst. And, unlike in the possible resolution to the COVID-19 pandemic, there will never be vaccines developed to protect against climate risk. But the good news is: we already have all the tools and knowledge in the financial markets to take sound preventative action.
Climate change presents risks to both the future and today — unless regulators act boldly, now.