Financial Stability Supervisory Board assesses climate risks

US Treasury Secretary Janet Yellen listens as US President Joe Biden meets with business leaders and CEOs on debt limitation at the White House in Washington, DC, October 6, 2021.

Kevin Lamarck | Reuters

The Financial Stability Oversight Board of the US Treasury Department on Thursday released a report that assesses the risks that climate change poses to the US financial system and makes recommendations to protect the economy.

The council released the report in response to President Joe Biden’s January 27 order that Treasury Secretary Janet Yellen, head of the FSOC, and financial regulators prepared a report on climate-related financial risk data.

The plan has the potential to push forward new regulations and oversight related to financial climate-related risks on Wall Street.

Climate-related disasters such as heat waves, droughts, floods and wildfires have become more frequent and threaten to undermine the stability of the financial system. In 2020 alone, a record number of natural disasters caused $ 95 billion in damageaccording to the National Oceanic and Atmospheric Administration.

The FSOC report also explains how climate change is likely to cause dramatic shocks in the financial system in the coming years. The report says different sectors will come under stress as policies, consumer sentiment and technology change to mitigate the effects of climate change.

For example, the Commodity Futures Trading Commission last year cited data suggesting that between $ 1 trillion and $ 4 trillion of global fossil fuel wealth could be destroyed.

Here are the main FSOC guidelines:

  • Form a Climate Financial Risk Committee
  • Fill climate-related data and methodological gaps
  • Improving public disclosure and reporting requirements related to climate
  • Reducing climate-related risks through scenario analysis.

A senior Treasury official, during a phone call with CNBC on Thursday, said the FSOC expects all board members to sign the report as well as formally establish the Climate Financial Risk Committee with bylaws.

Earlier this month, more than 20 federal agencies released climate change adaptation plans that identify the biggest threats climate change poses to their operations and facilities and how they can be addressed.

Most recently, the Biden administration issued a nationwide roadmap to consider how climate change could harm companies in which people invest and protect the savings of American families with retirement plans.

The President is set to attend the United Nations Climate Change Conference of the Parties, or COP26, in Scotland in early November. The United States has pledged to halve domestic greenhouse gas emissions by 2030 and reach zero emissions by 2050.

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