US Treasury urged to endorse bold, immediate action in FSOC climate report

October 14, 2021|Written by |Federal Reserve

Public interest groups have outlined their expectations for a much-anticipated report on regulators’ handling of climate-related financial risk, which is due to be published next week by the US Department of the Treasury.

Americans for Financial Reform (AFR) and Public Citizen want the Treasury to endorse immediate action to mitigate the dangers of the climate crisis, “even if they may not manifest until after the usual time horizon that regulators focus on”.

The report is being prepared under the leadership of Treasury Secretary Janet Yellen and in conjunction with the Financial Stability Oversight Council (FSOC). It will give a crucial insight into how climate-related financial risks will be handled under the Biden administration.

In a briefing released on Wednesday, Public Citizen and AFR called upon the Treasury to make clear in the FSOC report that fossil fuel finance is “a primary driver of systemic climate risk”. The groups want regulators to immediately issue supervisory guidance and carry out stress tests, as well as give consideration to a full range of potential interventions such as factoring climate risk into capital requirements and concentration limits.

“The administration’s policy is to mitigate both climate-related financial risk and its drivers,” said David Arkush, director of Public Citizen’s climate program. “To meet this charge, the report must acknowledge that fossil fuel finance is a primary driver of systemic climate risk and that our financial system today is completely misaligned to this reality and on a collision course with the administration’s climate agenda.”

“US banks lead the world in financing new fossil fuel development, and insurers and markets continue to misprice physical risk,” he added. “The Treasury report must show its understanding of this threat by adopting a precautionary approach that calls on regulators to intervene before risks overflow and trigger a new financial crisis.”

Ahead of the FSOC climate report, the Treasury has already taken some steps on addressing climate risk, such as announcing a coordinated climate policy strategy in August, and setting up a climate hub.

In March, Public Citizen and AFR published a detailed roadmap for climate regulation within the US financial sector. They were also signatories to a letter last month calling on banking regulators to immediately issue supervisory guidance.

This page was last updated July 9, 2024

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