A new report from Ceres, a global sustainability nonprofit where I serve on the board, describes the systemic threat that climate change poses to financial markets. The impacts—storms, wildfires, rising sea levels, and more—are multiplying, intensifying, and combining in ways that affect asset valuations, public health, worker productivity, and economic stability. The report provides more than 50 recommendations, all of which fall within the mandate of financial regulators.
U.S. financial regulators have the authority to provide the institutions they oversee with guidance to understand the climate risks they face, take the steps to mitigate their impacts, and make the transition to a low-carbon economy. As leaders of the most influential, innovative, and dynamic financial systems in the world, their actions regarding climate risk will strengthen sustainable financial markets and support global standards.
Key federal regulatory agencies, along with state and federal insurance regulators, can take immediate action to protect financial systems against climate-related shocks. The Federal Reserve should start researching the impacts of climate change on financial markets. Wall Street analysts, academics, and foundations have conducted plenty of research on the economic hazards of climate change, but none have provided a comprehensive understanding of the threats. The Fed alone is capable of crafting the definitive research needed to understand the cumulative risk that climate change represents for financial markets, the U.S. economy, and the global economy. There is no institution with better insight or expertise on modeling economic scenarios than the Fed.
If the U.S. Securities and Exchange Commission issued rules mandating climate-risk disclosure from companies and financial intermediaries, investors and other capital-market actors would have access to the data they need to mitigate climate risk in their portfolios. The 2017 disclosure framework established by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures provides a uniform methodology that is understood by both corporations and investors.