BETTER MARKETS’ WORK ADDRESSING CLIMATE CHANGE IN FINANCE

The reality of climate change is indisputable—average global temperatures are rising, as are sea levels, threatening coastal cities and communities. It’s been made clear by a number of organizations, including the United Nations, that unless countries around the world follow through on commitments to reduce CO₂ emissions, this is just the beginning.

Climate change looms as one of the inevitable triggers of profound instability and eventual crisis in our financial system and our entire economy if it is not aggressively attacked on all fronts.  Better Markets’ objective is to wage that fight in the financial regulatory sphere. It’s our view that banks and other financial institutions have not been doing enough to manage and account for the risks of climate change or to support the transition towards a more sustainable economy.

Put differently, change is certain, but progress is not. Change happens when people in power exercise that power, but progress only happens when those people exercise that power to serve the public interest.  In this case, that means doing all that is possible within their jurisdictions and mandates to confront and combat the many risks to the financial system, the economy, the country, and the world from the climate crisis.

While focusing on individual issues at individual agencies will remain important, a comprehensive, coordinated, and integrated approach to finance, the financial markets (domestic and abroad), and the financial regulatory agencies needs to be developed and implemented to prioritize ESG/climate across all the agencies and, thereby, in the markets they regulate.  This is especially important because of the interconnections between capital, derivatives, and commodities markets and their overlap with the broader financial and banking systems, giving the U.S. a unique position for its financial regulations to lead and impact the global economy.

Because Better Markets is engaged at all the regulatory agencies (highlighted by the report “The Road to Recovery: Protecting Main Street from President Trump’s Dangerous Deregulation of Wall Street”), it is ideally positioned to develop a comprehensive, coordinated, and integrated approach to finance, the financial markets, and the financial regulatory agencies.  Moreover, because Better Markets has developed a unique brand for deep substantive expertise and an effective advocacy roadmap to optimally impact the financial regulatory process (which we call our “Arc of Advocacy™”), it is well-positioned to turn that approach into an actionable plan that gets results.

What is the role of the financial regulatory agencies?

The financial regulatory agencies will continue to have enormous power and many opportunities to enact effective and impactful economic and financial policies.  A hostile or paralyzed Congress can harass those regulators, but it cannot stop them from doing their job.  However, that requires aggressive, sophisticated, and experienced outside support to get that job done.

All the financial regulatory agencies have direct and important roles to play in mitigating the impact of climate on the financial system, and the consumers, investors, and businesses of all sizes that rely on the resiliency, accessibility, and stability of the financial system.

• The Securities and Exchange Commission (SEC) — The SEC has clear statutory authority to require the disclosure of material information related to climate or, more broadly, environmental, social, and governance-related information (ESG information) from publicly traded companies.  This information would empower and enable investors to make more informed investment decisions about how to allocate their hard-earned money. This information could also support the investment decisions of large, institutional investors—such as retirement funds, endowments, and other pools of capital—to direct their significant capital to environmentally- and socially-friendly companies and commercial endeavors.
• The Commodity Futures Trading Commission (CFTC) — The CFTC has clear statutory authority to manage all things related to the derivatives and commodities markets, including risk management and price discovery. These markets have direct and indirect effects on ESG objectives. For example, speculative position limits have direct demonstrable effects on commodity prices and therefore capital allocation and investments in all of the major energy and agricultural commodities, including fossil fuels used in various economic activities.  Also, if carbon markets are ever to develop and become robust, they are going to require futures markets for price discovery and hedging.  The CFTC can be instrumental is all this and more.
• The U.S. Department of Treasury (Treasury) — Treasury is where the Financial Stability Oversight Council (“FSOC”) is situated.  The FSOC, which is chaired by the Secretary of the Treasury, should play a key role in addressing the risks of climate change. This unique and potentially very effective organization was established in the Dodd-Frank Act for the specific purpose of identifying emerging risks to financial stability and promoting market discipline. Their authority also includes the designation of nonbank financial companies as systemically important and their resulting supervision and regulation by the Federal Reserve.
• The Banking Agencies (the Fed, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)) — The Agencies should be using their supervisory and regulatory authorities to continually assess, monitor and address both the micro-prudential (at each individual bank) and macro-prudential (across banks and the system) risks of climate change. Without question, climate change is posing increasingly significant risks to the banking system, financial stability, payment system promotion, and consumer protection.

How is Better Markets working to move the regulators in the right direction?

Through a mix of comment letters, reports, fact sheets, op-eds, letters to Congress and regulators, as well as media, Better Markets continues to advocate for the regulatory agencies to fulfill their vital roles in addressing climate change.

Better Markets Key Information

Here are the actions that Better Markets has taken to push for climate accountability and oversight in the financial system:

• Our Earth Day Fact Sheet stressed the urgency to address the many financial risks caused by climate risks. (6/5/24)
• As the House Financial Services Committee traveled to Tennessee bash SEC climate disclosure rules, our team flagged the growing risk of climate change for Tennessee families. (3/15/24)
• We submitted a comment letter urging the Basel Committee on Banking Supervision to further strengthen and adopt the proposed requirements on disclosure of Climate-Related Financial Risks. (3/14/24)
• Our statement on the SEC’s climate rule criticized the agency for not doing enough to protect investors, markets and financial stability. (3/6/24)
• We called on the SEC to swiftly approve important propose rules on climate change and ESG. (2/21/24)
• In a comment letter to the CFTC, our team supported a proposal to address the urgent climate crisis by enhancing transparency and integrity in the carbon credit markets. (2/16/24)
• In a new report our team evaluated the growing risk of climate change to both the insurance industry and the banking sector and its potential impact on our entire financial system. (8/23/23)
• Better Markets Legal Director and Securities Specialist Stephen Hall wrote an article in the Environmental Law Reporter on regulation and ESG funds. (8/1/23)
• Our team examined the need for banking regulators to include climate related financial risks in their risk analysis- Fact Sheet: Politics Aside, Banking Regulators’ Risk Analysis Must Include the Many Well-Known Climate-Related Financial Risks (7/17/23)
• Stephen Hall, our legal director and securities specialist, spoke at the CFA Institute Climate Risk and Returns Conference this April. Steve’s panel explored how public policymakers, corporations, the investment community, and individual citizens all must work together to address climate change. Steve put together a blog based on his presentation at the panel. (5/3/2023)
• Better Markets highlighted the widespread, mainstream, consensus from Washington to Wall Street and beyond that climate change poses serious and dangerous risks to the financial system and the economy-  Fact Sheet: Financial Risks Related to Climate Change Must Be Addressed—Republicans, Democrats, Wall Street Banks, Finance Leaders Agree (2/9/2022)
• We outlined the impact of climate change on the banking system and what regulators should prioritize- Report: Climate Change & the Banking System (11/2/2021)
• We urged supervisory assessment framework that must also include assessments of climate change-related issues- Report: The Agenda for the Fed’s Next Vice Chair for Supervision (Climate Related Arguments- 10/7/2021)
• Our team emphasized the importance of the Fed’s role in climate change- Report: Should Federal Reserve Chairman Jay Powell Be Reappointed? (Climate Section- 8/23/2021)
• Better Markets explored the importance of ESG factors in a comprehensive report- White Paper: What Is ESG and Why Is It So Important? (7/14/2021)
• Better Markets filed substantive comments in response to the SEC’s request for information on climate related disclosures- Comment Letter: Climate Change Disclosures (6/14/2021)
• Better Markets lauded the leadership of CFTC Commissioners for their proactive climate policy- Letter: Better Markets Writes to CFTC Commissioners Praising Their Leadership in Addressing Climate-Related Risks (6/24/2021)
• We added new Members to the Better Markets Board to strengthen our climate change expertise- Press Release:  NCRC Membership, Policy and Equity Chief, Climate Change Tech Executive Join the Board of Directors (5/18/2021)

SEC

• Comment Letter: SEC Rules Will Help Provide Reliable and Comparable Information for the Growing Number of Investors Interested in ESG Funds (8/7/2022)
• Comment Letter: We Support the SEC’s Climate-Risk Disclosure Proposal, A Very Strong Measure That Can Be Made Even Better (6/17/2022)
• Press Release: We Welcome the SEC’s Climate Proposal Today, Which Recognizes Investors’ Need For Greater Disclosure (3/21/2022)
• Blog Post: Better Markets Responded to SEC Request for Public Input on Climate Disclosures (6/25/21)

Federal Reserve

• Comment Letter: The Fed Begins to Tackle Climate Change Risks Building Up in the Big Banks (2/6/23)
• Op-Ed: Better Markets Identifies The Real Threat To The Federal Reserve’s Independence From The Oil And Gas Industry in The Hill (3/14/2022)
• Report: The Agenda for the Fed’s Next Vice Chair for Supervision (Climate Related Arguments (10/7/2021)
• Report: Should Federal Reserve Chairman Jay Powell Be Reappointed? (Climate Section- 8/23/2021)
• White Paper: What Is ESG and Why Is It So Important? (7/14/2021)

FDIC

• Comment Letter: FDIC Takes Important Step Towards Managing Climate-Related Financial Risks (6/3/2022)

CFTC

• Comment Letter: CFTC’s Proposal Increasing Transparency In Carbon Credit Markets Is Crucial In The Fight Against Climate Change
• Comment Letter: CFTC Must Act Now to Protect America’s Families from the Real Risks Climate Change Poses to Their Lives and Livelihoods, as Detailed in Our Comment Letter (10/7/2022)
• Letter: Better Markets Writes to CFTC Commissioners Praising Their Leadership in Addressing Climate-Related Risks (6/24/2021)

OCC

• Comment Letter: Better Markets Applauds OCC Proposal to Incorporate Climate-Related Risks Into Bank Supervision & Assessment (2/14/2022)

Treasury

• Joint Letter: Better Markets Joins Coalition to Encourage Treasury Secretary Yellen to Name Senior, Experienced Climate Official (2/25/21)

Basel Committee

• Comment Letter: Better Markets Welcomes Basel Committee’s Inclusion Of Our Suggestions In Finalized Climate-Related Financial Risk Management Principles (6/22/2022)
• Comment Letter: Better Markets Endorses Basel Committee’s Proposed International Standards For Addressing Climate-Related Financial Risk (2/16/2022)

Media Hits

• US SEC to vote on long-awaited climate disclosure rule, notice says (2/29/24)

• Climate change raising risks of financial disaster for homeowners, insurers and bankers (The Hill- 8/30/23)

• Cracking Down on a Wall Street Trend: E.S.G. Makeovers (NY Times- 9/17/2022)
• Debate flares over possible climate guidance for small banks (E & E News- 6/7/2022)
• Fed Chair Powell Enjoys Support for Reappointment, but He’s Not a Lock (WSJ- 7/21/21)
• Who Should Provide ESG Assurance? (Reuters- 8/20/21)
• Analysis: Sustainable investing advocates hope for friendlier U.S. rules if Biden wins (Reuters- 11/2/2020))

Want to stay in the loop? Stay tuned. This page will be regularly updated with Better Markets’ latest analyses on the intersection of climate and finance.