Center for American Progress

RELEASE: The Financial System Is Blindly Digging Its Own Grave on Climate-Related Risk
Press Release

RELEASE: The Financial System Is Blindly Digging Its Own Grave on Climate-Related Risk

Washington, D.C. — A new issue brief from the Center for American Progress examines the ways in which the financial system is blindly digging its own grave by failing to measure, disclosure, or mitigate its exposure to shocks due to climate change.

In the coming years, climate risk is expected to cost the global financial system tens of trillions of dollars due to physical risks, including damage to property and economic productivity due to extreme weather, along with transitional risks, or the costs associated with the eventual decline of the fossil fuel industry as the world switches to greener sources of energy.

The brief argues that while it’s clear that the U.S. financial system is highly exposed to climate shock, regulators’ failure to mandate critical disclosure items, such as financed emissions, is inhibiting the ability of financial markets and regulators themselves to properly prepare for and mitigate negative impacts. The brief draws a parallel to the period before the 2008 financial crisis, when regulators had no grasp of the scope and implications of toxic mortgages until it was too late. However, the potential impact of climate risk is a greater order of magnitude, meaning that a financial crisis, or sequential crises, due to climate change could well exceed the 2008 crisis.

Because regulators have for far too long failed to limit the sector’s exposure or to measure risk, the brief calls on Congress to seize the moment to force unwilling regulators to require clear, comparable, and reliable disclosure by banks, insurance companies, and asset managers regarding their—and their advised funds’—exposures to the fossil fuel industry and climate risk. In particular, the brief calls for the disclosure of carbon emissions financed by the financial sector.

“The COVID-19 economic crisis should be a chilling wake-up call for what awaits the U.S. financial system from climate change-related shocks,” said Andy Green, managing director of Economic Policy at CAP and co-author of the brief. “What we know is that climate change is here, and the U.S. financial system is highly exposed. It is stunning that after all these years, we have so little solid climate disclosure generally, and even less on financial sector carbon emissions—information that is vital to enable investors and regulators to evaluate where the financial system is most exposed. It is imperative that financial regulators act now to measure and mitigate climate-related risks and impacts before it’s too late.”

Click here to read the issue brief: “Financial Markets and Regulators Are Still in the Dark on Climate Change” by Andy Green, Gregg Gelzinis, and Alexandra Thornton

For more information or to speak with an expert, contact Julia Cusick at [email protected].

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