Schatz, Casten Float Bill to Test Risk for Financial Sector

November 25, 2019
In The News

Sen. Brian Schatz (D-Hawaii) and Rep. Sean Casten (D-Ill.) introduced a bill today aimed at assessing climate change risk in the financial sector, an emerging area of focus for congressional Democrats.

The legislation would require the Federal Reserve to develop stress tests to gauge how prepared financial institutions are to handle various climate change scenarios.

It would effectively extend the kind of financial analysis the Fed already does for large banks under the Dodd-Frank Act to include climate risk, an emerging concern for large financial institutions that stand to take hits from extreme weather, rising seas and stranded fossil fuel assets.

"While our federal regulators are legally obligated to manage and reduce risks in the financial system, they have been ignoring the growing financial risks of climate change," Schatz said in a statement. "We should not be treating some risks different from others: risks are risks."

The bill, like other measures related to climate change, is unlikely to pass the GOP Senate. But it's part of a broader effort by Democrats to put a microscope on the financial sector and pressure it to disclose and avert risk in the face of climate change.

On the Senate side, it's even drawn several presidential candidates as co-sponsors: Sens. Michael Bennet (D-Colo.), Cory Booker (D-N.J.), Kamala Harris (D-Calif.), Amy Klobuchar (D-Minn.) and Elizabeth Warren (D-Mass.).

"Climate-related financial risks pose serious threats to our economy, whether this is due to the physical risks of the crisis or those risks posed to investments in conventional resources by a successful transition to clean energy," Casten said in a statement.

"Either way, U.S. consumers deserve to have confidence that our financial institutions are adequately prepared for these risks and won't be caught unaware as they were in 2008," he said.

Schatz, a member of the Senate Banking Committee, and Casten, who sits on the House Financial Services panel, have both put a focus on finance as a potential lever for climate-friendly economic change.

Casten is the lead House sponsor of a separate bill, H.R. 3623, to require companies to disclose greenhouse gas emissions, fossil fuel assets and climate risks. That measure passed the Financial Services Committee earlier this year (E&E Daily, July 18).

And Schatz and other Senate Democrats met with executives from major financial services in September to ask them to better assess their climate risk (E&E News PM, Sept. 27.)

The new bill would convene an advisory group of economists and climate scientists to develop climate stress tests, a type of analysis used to determine how prepared financial institutions are to deal with future economic scenarios.

It would require the Fed to test financial institutions under three future scenarios: one where global temperatures are limited to 1.5 degrees Celsius over preindustrial levels; another where global temperatures hit 2 degrees Celsius over preindustrial levels; and a "business as usual" scenario, where current climate policies allow warming to go unchecked.

The Fed would conduct climate stress tests every two years on large firms with more than $250 billion in total assets.

Other Senate co-sponsors include Sens. Chris Van Hollen (D-Md.), Sheldon Whitehouse (D-R.I.), Jeff Merkley (D-Ore.) and Patty Murray (D-Wash.).

On the House side, the other sponsors are Reps. Susan Wild (D-Pa.), Julia Brownley (D-Calif.), Suzanne Bonamici (D-Ore.), Joe Kennedy (D-Mass.), Scott Peters (D-Calif.) and Paul Tonko (D-N.Y.), ranking member of the Energy and Commerce Environment and Climate Change Subcommittee.

It also has backing from progressive and investor activist groups, including the Center for American Progress and Ceres.

"Major investors and companies from across sectors are taking action to reduce their own GHG emissions, but progress is not happening fast enough," Mindy Lubber, president and CEO of Ceres, said in a statement. "This proposal will provide the clarity and analysis needed to help the financial industry make smart decisions to accelerate the transition to a low-carbon economy."

Other climate bills

Meanwhile, Harris yesterday introduced a separate measure, S. 2893, to amend the federal Superfund law to require climate change considerations.

The "Preparing Superfund for Climate Change Act" would direct EPA to consider climate change as part of its plans for toxic cleanup, following a Government Accountability Office report this week that showed climate change poses a threat to 60% of Superfund sites (E&E News PM, Nov. 18).

And Rep. Danny Davis (D-Ill.) floated another measure, H.R. 5168, yesterday to require a report to Congress on the greenhouse gas reporting program.