Republican attacks prompt fierce defence of US climate risk measures

October 12, 2022|Written by |Securities & Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve

US financial institutions and regulators have robustly defended measures to address climate-related financial risks, following the latest round of attacks from conservative lawmakers. Republicans at both state and federal levels are engaged in initiatives to block the integration of climate considerations into financial decision-making, with several key battles currently playing out.

Toomey sees secret agenda in Fed scenario analysis

Pat Toomey, the lead Republican on the Senate banking committee, recently criticised the Federal Reserve’s plan to conduct a pilot scenario analysis exercise, implying it is part of a covert bid to discourage banks from investing in carbon-intensive industries.

“The real purpose of this program is to ultimately produce new regulatory requirements,” Toomey said in a statement. “While the Fed can call this pilot program by whatever name it may prefer, it sounds exactly like a stress test to me.”

The Fed has repeatedly stated that the scenario analysis pilot is “distinct and separate” from its routine bank stress tests, and that the initiative will have no implications for banks’ capital requirements. Many other central banks – including the Bank of England, European Central Bank, Bank of Japan and Bank of Canada – have already conducted similar exercises.

Phillip Basil, banking policy director at Better Markets expressed relief that the Fed is finally joining its peers in undertaking the pilot, and described scenario analysis as “key to identifying, sizing, and assessing the risks that climate change poses to the financial system”.

Republicans could scupper SEC rule after midterm elections

A Republican member of congress has predicted his party would be “very likely” to defund the Securities and Exchange Commission’s (SEC) climate risk disclosure programme if it wins a majority in the House and Senate in this November’s midterm elections, according to an S&P Global report.

Utah representative Chris Stewart said his Republican colleagues would even be willing to use the threat of a federal government shutdown to stop what he called an overreach of the SEC’s authority.

SEC chair Gary Gensler has reportedly been in behind-the-scenes negotiations with Republicans in an attempt to shore up support for the rule. He is said to have pointed to the broad support the proposals have received from institutional investors and the huge number of comments submitted to a call for evidence earlier this year.

“This rule is rooted in decades of law and it’s about a conversation that’s already going on between public companies and their investors,” Gensler told a recent hearing by the Senate banking committee.

Blackrock defends ESG stance

The investment giant BlackRock has defended its integration of environmental, social, and governance (ESG) considerations into investment decisions amid ongoing attacks from Republican lawmakers.

In one such effort, the Texas state government has named BlackRock among a list of companies it deems to be “boycotting” oil and gas investments, following legislation last year requiring state entities such as pensions to stop doing business with such firms. It seized on the asset manager’s membership of the Global Financial Alliance for Net Zero, as well as its internal ESG data, to justify placing it on the list.

Meanwhile, Louisiana’s treasurer said last week the state would pull nearly $800m from BlackRock funds by the end of the year, citing its support for ESG investing.

Blackrock has strongly denied it is boycotting high-carbon sectors, touting the billions in support it is continuing to give to fossil fuels, including in Texas. But a new website offers a defence of its policies on climate risk.

“Our consideration of the risks and opportunities of a transition to a low-carbon economy is in the interest of realising the best long-term financial results for our clients and entirely consistent with our fiduciary duty,” it states.

Former deputy Treasury secretary Sarah Bloom Raskin recently warned that states’ anti-ESG measures could endanger financial stability, as banks may feel obliged to continue lending to high-carbon sectors even if there are good risk management reasons to cut back.

An investigation by corporate watchdog Documented found that many state-level anti-ESG initiatives are being coordinated by the State Financial Officers’ Foundation, an organisation with ties to climate science denying political groups and the fossil fuel sector.

This page was last updated October 13, 2022

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