Climate change threatens “unprecedented disruption” to the U.S. financial system

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A number of different reports were published this week, all once again outlining the devastating consequences of climate change (more on those below.) But the one that offers perhaps the brightest glimmer of hope is a landmark report from a federal regulator on the systemic risk climate change poses to the U.S. financial markets.

Bear with me.

The report, prepared by an advisory panel to the U.S. Commodity Futures Trading Commission (CFTC), notes that the physical impacts of climate change are already having an adverse affect on material assets in the U.S.—see the wildfires torching the West coast and the hurricanes flooding the East.

The 196-page report also warns that action taken to mitigate these affects—such as pursuing a carbon neutral economy—”may also” impact major segments of the economy.

“Both physical and transition risks could give rise to systemic and sub-systemic financial shocks, potentially causing unprecedented disruption in the proper functioning of financial markets and institutions,” it warns.

So where’s the good news? Well, the good news is that the report was commissioned and written at all. Its publication marks the most substantial review a U.S. federal agency has conducted on the risk of climate change poses to the financial system. And money is a powerful motivator.

Recognizing the economic imperative for adopting sustainable practices is already de rigeur in business. It’s been over a year since the Business Roundtable made its historic shift to endorse “stakeholder capitalism,” in which time myriad companies have published manifestos for achieving “net zero.”

Whether those plans are carried through relies a lot on whether the financial incentives are there to support them. ESG investing is beginning to boom, but the CFTC report hints a more structured ecosystem for green investment is on the horizon in the U.S.

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There are some caveats. Although the report is endorsed by all 35 of the CFTC’s members, which includes the likes of Goldman Sachs, Citigroup and JP Morgan, some have said it requires more research. Even the CFTC is reluctant to embrace the report it commissioned—publishing it with a disclaimer that the report does “not necessarily reflect” the views of the CFTC nor the federal government.

Such institutional reluctance to accept the realities of climate change is one reason why the U.S. has lagged so far behind the EU in developing a carbon pricing scheme—something the report says is the primary prerequisite for saving the U.S. financial system from disaster.

Eamon Barrett
eamon.barrett@fortune.com

…read more

Source:: Fortune

      

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