Public Citizen News / May-June 2023
By Patrick Davis
This article appeared in the May/June 2023 edition of Public Citizen News. Download the full edition here.
In late March, U.S. Sen. Edward J. Markey (D-Mass.) and Reps. Ayanna Pressley (D-Mass.) and Rashida Tlaib (D-Mich.) introduced legislation requiring the Federal Reserve to address the systemic risk that climate change and the energy transition present to our financial system. If enacted into law, the Fossil Free Finance Act would require the Fed to use its existing powers to mandate that the biggest banks stop endangering themselves and the financial system by driving the climate crisis and instead lend and invest responsibly.
“The recent banking crisis illustrates that banks need strong oversight, and bank regulators have failed to address obvious risks in plain sight,” said David Arkush, director of Public Citizen’s Climate Program. “The same is true of climate-related financial risk, which regulators have acknowledged but are moving too slowly to address. The Fed is allowing the largest U.S. banks to threaten the financial system and flout their own public climate commitments by recklessly inflating a massive carbon bubble and fueling the climate crisis.”
The bill, which Markey, Pressley, and Tlaib reintroduced with Arkush at a press conference outside the U.S. Senate, would require the Federal Reserve to prohibit financing of new or expanded fossil fuel projects immediately, thermal coal financing after 2024, and all fossil fuel financing after 2030. In addition, banks would be required to reduce their financed emissions 50% by 2030 and reach zero emissions by 2050.
“Senator Markey and Reps. Pressley and Tlaib’s legislation would jump-start genuine oversight by requiring the Fed to align big banks’ financing with the realities of the climate crisis and our rapidly changing economy,” said Arkush.
Since the bill was first introduced in 2021, federal bank regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, have begun to roll out limited guidance for large banks to address climate-related risks they face. Regulators outside the United States have acknowledged the important role of transition plans for managing climate-related risks to banks and the financial system.
“When our federal government allows our nation’s largest banks to bankroll the dirtiest fossil fuel projects, our planet, our people, and our economy suffer,” said Pressley. “We need a financial system that recognizes the existential threat posed by climate change and takes aggressive action to stop it. Our Fossil Free Finance Act would do just that by requiring banks to stop financing dirty fossil fuel projects and help us prevent a massive, climate-induced economic collapse.
In addition to the bill sponsors, 66 consumer, advocacy, and environmental groups have endorsed the legislation, including the Sierra Club, Americans for Financial Reform, Greenpeace, Hip Hop Caucus, and Evergreen Action.
“So far, financial regulators have failed to rein in Wall Street’s reckless behavior,” said Ben Jealous, executive director of the Sierra Club. “Without strong federal oversight and regulation, these banks will only continue pouring money into the fossil fuel expansion driving the climate crisis, taking on excessive risk, and threatening to destabilize the entire economy.”
At the Capitol Hill launch, Markey, flanked by Pressley and Tlaib; Tanya Clay House, executive vice president for the Hip Hop Caucus; and Arkush called on the Federal Reserve to take on a more active role in preventing a looming crisis in the banking sector caused by climate change.
“Climate risk is financial risk—posing a grave threat to our global economy, including our financial systems,” said Markey. “The Federal Reserve has a responsibility to protect financial stability, but instability will run rampant if climate chaos grows unabated. I am proud to reintroduce the Fossil Free Finance Act, legislation to require our financial institutions, including banks, to protect Americans’ savings, investments, and economy by taking into account not only the planetary but the economic threats posed by climate change.”