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Feb. 19, 2021, 8:33 a.m. EST

Federal Reserve starts playing catch-up on climate change

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Greg Robb

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The Commodity Futures Trading Commission led a bipartisan group late last year that released a first-of-its-kind climate-change report for the financial sector . The report labeled climate change as the biggest long-running risk to the financial system and recommended that 16 financial regulators and other bodies “incorporate climate-related risk into their mandates and develop a strategy for integrating these risks in their work, including into their existing monitoring and oversight functions.”

Central banks and supervisors from other countries joined together in late 2017 to share best practices and develop climate risks assessments.

A key message of Brainard’s speech was the Fed will try to improve its understanding of climate risk while at the same time taking steps to mitigate the risks.

The Fed “has to work on parallel tracks here,” Gelzinis said.

The U.S. has a fragmented system for overseeing the financial markets and the top regulatory agencies, including the Securities and Exchange Commission and the Treasury Department are adding climate czars to their staffs.

A separate banking regulator, the Office of the Comptroller of the Currency has paused under the new administration a Trump-era rule change that would have required banks to provide quantitative measurements to back decisions to not lend to oil and gas industries where there are both financial stresses and reputational risks.

Disjointed rules and goals has been a major gripe from an investing and lending community that’s increasingly factoring in climate change to decision-making.

Gelzinis said he hoped the government’s umbrella regulatory body — the Financial Stability Oversight Council — would supervise the response to climate financial risks.

“Climate change really is the type of risk that FSOC was designed to address, one that’s cross-cutting and impacts a whole host of different regulators,” he said.

He said the Treasury climate-change point-person will also have to tackle tax policy and international cooperation.

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