Blog: ESG investors urge regulators to create game plan for climate risk – Roll Call

Many of the recommendations echo similar findings from an October report from the Financial Stability Oversight Council. As part of its nonbinding recommendations, the council, led by Treasury Secretary Janet L. Yellen and comprising the leadership of the top U.S. banking and financial regulators, called on member agencies to consider mandatory public disclosures on climate-related risks by companies including insurers, banks and issuers of municipal securities. It also recommended scenario analysis of potential risk outcomes associated with global warming. 

At the time, ESG proponents were disappointed that regulators endorsed increased disclosure while declining to pursue more aggressive climate risk regulations. Since then, progressives and Democrats have pushed regulators to implement the FSOC recommendations with a particular focus on bank supervision. 

“The U.S. regulatory agencies remain woefully behind in managing and addressing climate-related risks in the banking system,” said Phillip Basil, director of banking policy at left-leaning financial reform advocate Better Markets. “Addressing the potentially destabilizing risks from climate change clearly fall within the mandates of the agencies, which are to promote a strong banking system and to work to maintain financial stability.”

In November, Better Markets released its own recommendations on how the government should address climate-related financial risk. The report echoed similar recommendations FSOC had, like incorporating climate risk into the supervisory process, but the organization pushed for more robust measures such as specific stress tests.

Democrats’ letter

In December, a coalition of 11 Democratic senators sent a letter to top U.S. financial officials urging them to update outdated supervisory expectations for management to account for climate-related financial risks. The senators, led by Jack Reed of Rhode Island, argued that “current supervisory guidance in the United States has not been revisited in decades, nor does it address the unique risks associated with today’s rapidly changing climate.”

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