Financial Regulation an Essential Tool for Fighting Climate Crisis

Public Citizen News / May-June 2021

By DeAnte Washington

This article appeared in the May/June 2021 edition of Public Citizen News. Download the full edition here.

Reform and regulation in support of financial stability are essential elements of the Biden administration’s whole-of-government approach to fighting climate change in an equitable way, according to a new report offering detailed recommendations for U.S. regulators ahead of the Financial Stability Oversight Council’s first-ever meeting to discuss climate risk.

The “Climate Roadmap for U.S. Financial Regulation,” a report from Public Citizen and Americans for Financial Reform Education Fund, outlines how Biden appointees can protect investors, workers, and the economy from the escalating risks caused by the climate crisis, while also shifting the regulatory framework towards one that promotes the transition to a low-carbon future. The roadmap was developed in partnership with ClimateWorks Foundation and draws on contributions from dozens of leading financial reform experts.

The 35-page report notes that racial equity and justice need to be a central element in regulators’ approach to climate risk. And that effective mitigation of climate risk requires effective regulation of finance generally, including ensuring that rules cover all financial actors, not just some of them.

“Wall Street is gambling against our future and putting the health of our communities and economy at grave risk. Given the urgency of the climate crisis, we can’t afford continued inaction,” said David Arkush, managing director of Public Citizen’s Climate Program. “Financial regulators already have an obligation to protect us from Wall Street’s risky bets and this roadmap is designed to help them act immediately, using all the tools currently at their disposal.”

The report is a comprehensive compendium of actions the federal government can take, starting with decisions on key presidential appointments and staff. It provides an extensive discussion of how banking and insurance regulators and supervisors across many federal agencies can do their part. It also outlines a framework for sensible capital market regulation that enables investors to invest their values on climate as well as account for climate risk.

The Climate Roadmap for U.S Financial Regulation underscores the need for financial regulators to immediately and publicly recognize climate change as a systemic risk and demonstrate their commitment to incorporating that risk into financial regulation. They also need to safeguard low-income communities and communities of color, which are typically hit first and worst by climate harms. If financial regulators aren’t careful, the same communities could face additional harm from financial services being priced too high or denied outright.

In March, after U.S. Special Presidential Envoy for Climate John Kerry indicated that the private sector, rather than government, will lead the fight against the climate crisis, 145 organizations, including Public Citizen, sent a letter urging Kerry to end “the flow of private finance from Wall Street to the industries driving climate change around the world—fossil fuels and forest-risk commodities.” The letter argues that demonstrating climate leadership on a global scale requires ending “financing of fossil fuels and deforestation around the world by U.S. firms and entities.”

Taken together, the letter and report make the case for regulators to commit to bold and timely action in taking on the climate crisis. “At its next meeting, the FSOC should take the concrete steps we recommend in the Climate Roadmap. There’s still time to act, but no more time to delay,” said Alex Martin, Senior Policy Analyst of Americans for Financial Reform Education Fund.