ARKANSAS, Sept 25 (Future Headlines)- A coalition of U.S. senators, including Elizabeth Warren, Bernie Sanders, Martin Heinrich, Edward Markey, Sheldon Whitehouse, and Jeffrey Merkley, is urging the U.S. Treasury Department to take more proactive measures in addressing climate change risks within the country’s financial system. In a letter sent to the Treasury, the senators acknowledge the department’s efforts thus far but call for greater urgency, emphasizing the increasing threats posed by climate-related issues.
The senators expressed concern about a range of climate-related financial risks that could destabilize the U.S. economy. They emphasize that these risks are not distant possibilities but are already becoming evident. The senators highlight the risk of a crash in coastal property values. Rising sea levels and the increasing frequency and severity of extreme weather events are putting coastal properties at risk, which could have significant implications for property values and mortgages.
Climate-related disasters are straining insurance markets. The senators note that only 40% of direct weather-related costs worldwide in 2022 were covered by insurance providers, highlighting the financial vulnerability of individuals and businesses when it comes to climate-related damages. In addition, wildfires are becoming more frequent and severe due to climate change. These disasters pose a challenge to the insurability of properties, particularly in regions prone to wildfires.
The senators express particular concern about nonbank financial institutions, which played a critical role in the 2008 global financial crisis. They call on the Financial Stability Oversight Council (FSOC) to finalize and immediately implement a new analytic risk framework specifically designed for climate-related financial risks. This framework aims to assess and mitigate the systemic risks posed by climate change to the financial system.
The senators put forth several recommendations to address climate-related financial risks effectively. The Treasury should develop more robust climate risk scenario exercises for banks. These exercises will help financial institutions better understand and prepare for the financial implications of climate change. All members of the FSOC should have access to data collected by the Treasury’s Climate Data and Analytics Hub. This access will facilitate informed decision-making and risk assessment within the council.
While the senators welcome the Treasury’s voluntary principles for “net-zero” financing commitments, they argue that there are gaps in the guidance. The Treasury should provide clearer guidelines and insist that all large financial institutions have credible transition plans. The senators reiterate their call for stronger Internal Revenue Service (IRS) enforcement of rules governing political activity by nonprofit organizations. They point to concerns that special interests may be obstructing climate action by funding climate change denial efforts.
The senators emphasize the need for decisive action to protect the U.S. economy from what Treasury Secretary Janet Yellen has described as an “existential threat” posed by climate change. Recent climate disasters and financial disruptions underscore the rising costs and consequences of climate change. Addressing climate-related financial risks is essential to ensuring the stability of the financial system and safeguarding the economic well-being of the United States.
The senators’ letter reflects a growing recognition among policymakers that climate change poses not only environmental challenges but also significant financial and economic risks. It calls for a proactive and comprehensive approach to assessing and mitigating these risks, involving both regulatory oversight and industry cooperation.
Reporting by Emad Martin