The Commodity Futures Trading Commission (CFTC), a regulatory body known for warning of the build-up of financial risks that cause the 2008 crisis, this week released a major new report which highlights how climate change poses a major risk to U.S financial stability.
Unfortunately, this finding is at odds with how the Federal Reserve, Treasury, and Trump Administration are addressing the economic fallout from the pandemic. By bailing out failing fossil fuel companies, these bodies have been increasing both climate and financial risks.
The report notes that as the transition to clean energy accelerates, fossil fuel assets that companies consider valuable might become stranded, undermining balance sheets, the pandemic response has increased this possibility by rescuing and subsidizing some of the worst-performing fossil fuel companies.
The CFTC called on financial regulators to move urgently and decisively to address the financial risks posed by climate change. Existing statutes already provide regulators with wide-ranging tools that could be used now, the report notes. The clarity of these warnings and calls for regulatory action are particularly notable given that the CFTC is currently under Republican control.
These findings were welcomed by a group of leading environmental organizations - including Ceres, Environmental Defense Fund, The Nature Conservancy, and the World Resources Institute, who called on US regulators to act immediately: “Left unaddressed, these risks will undermine the financial system’s capacity to serve and support America’s economy. What is needed now is action from financial regulators, who under existing legislation already possess wide-ranging, flexible authority to address climate-related financial risk. Later will be too late.”
Conoco Phillips, an oil and gas company that participated in preparing the report, sounded a very cautious tone, saying it supported “prudent regulatory action and for continued dialogue and education to further understand climate change risk within the financial market” — essentially arguing that the process should be slowed down.
Tyson Slocum, a director of Public Citizen’s Energy Program, was more critical: “The evidence already demonstrates that climate change poses systemic risk today. The report’s recommendations to other regulators are similarly stunted. Calls for further study dangerously delay needed action.”