Casten Questions Chairman Powell on Climate Risk in Hearing on U.S. Economy
Washington, DC –U.S. Representative Sean Casten (IL-06) questioned Federal Reserve (Fed) Chairman Jerome Powell in the House Committee on Financial Services (FSC) about the systemic risks climate change poses to the U.S. and global financial sector and what, if any, action the Fed is taking to mitigate that risk. Under current projections, the overall social, environmental, and economic impacts of climate change could rise to catastrophic levels—from risk of more severe weather events such as flooding or wildfires that threaten physical assets that underpin bank loans to upheaval of banks' business as countries reduce their reliance on fossil fuels and transition to cleaner sources of energy.
Hours after the hearing, the Securities and Exchange Commission announced that it will update its guidelines on how publicly traded companies should disclose climate-related risks to investors following a new report from the Center for American Progress showing why federal regulators must take action to address climate risk and calling on the U.S. Securities and Exchange Commission (SEC) to require that publicly traded companies disclose their exposure to climate change-related risk—policy Casten introduced with Senator Elizabeth Warren during his first term. Importantly, the SEC is not the only regulatory agency signaling action on climate risk. On Monday, Secretary Yellen stated in an interview with the New York Times that climate change is part of a broader mandate for the Treasury, as it is for other departments under this Administration, recognizing the role of financial institutions and the risks they face by investing or lending to companies that are exposed to climate change.
When Rep. Casten asked Chair Powell if he agreed with Secretary Yellen, Chair Powell confirmed that the Fed has a mandate to ensure financial institutions manage and understand all of the risks they face, including climate risk. In response, Casten noted that he certainly agrees with Secretary Yellen, given estimates of losses north of $20 trillion per year. Casten went on to cite the Fed's Governor Brainard's statement in a speech last week that there have been over $5.2 trillion in losses associated with the physical risks of climate change since 1980, 70% of which was not insured and all of which is accelerating before asking Powell, "What is the Fed is doing specifically about the exposure the financial sector has to those physical losses from climate change?"
After the hearing Casten said, "Climate risk may sound complex, but it's really pretty simple. There are two types of risk that our economy faces from rapidly accelerating climate change: physical risk and transitional risk. Physical risk is the flooding and property damage from rising sea levels or the crisis in Texas from cold weather surges resulting from melting polar ice caps. Transitional risks come from changes in our economy as markets begin to favor cleaner, cheaper energy.
"When it comes to the climate crisis, the scientific and economic evidence is definitive: The earth warming is a rapidly rising tide, so the rate at which we are making this transition to a clean energy economy better be at least as fast. Senator Warren and I introduced the Climate Risk Disclosure Act because we believe that markets must account for the economic damage caused by climate change so that every American can benefit economically as we build towards a clean energy economy."
To watch Casten's questions to Chairman Powell, click the image below or click here.
A recent survey of central banks found a large majority view it as appropriate "to act within their existing mandate to mitigate climate-related financial risks" that "could potentially impact the safety and soundness of individual financial institutions and could pose potential financial stability concerns for the financial system.
Casten and U.S. Senator Elizabeth Warren (D-Mass.) introduced H.R. 3623 the Climate Risk Disclosure Act of 2019 to require public companies to disclose critical information about their exposure to climate-related risks. The legislation would help investors appropriately assess climate-related risks, accelerate the transition from fossil fuels to cleaner, and more efficient energy sources, and reduce the risks of both environmental and financial catastrophe. The bill passed out of the House Financial Services Committee in July of 2019.
Casten and U.S. Senator Brian Schatz (D-HI), introduced the Climate Change Financial Risk Act of 2019 to direct the Federal Reserve (Fed) to conduct stress tests on large financial institutions to measure their resilience to climate-related financial risks.