Happy to report that after a long period of head-in-the-sand actions by their predecessors, some old and all of the new leaders at financial regulatory agencies see the risks of climate change to the economy and know that investors need to know more about it, too. The climate crisis is real. Here\u2019s just a snapshot of the good news on climate financial disclosure (although some on Capitol Hill and the deposed former chief of the OCC don\u2019t like it).<\/p>\n
Last week, Gary Gensler, President Biden\u2019s extremely well-qualified nominee to head the Securities and Exchange Commission (SEC), pushed back hard<\/a> on a number of questions from Pat Toomey (PA) and others at his confirmation hearing over whether climate risks were \u201cmaterial\u201d to public companies if they didn\u2019t show up as a big number on their balance sheets.<\/p>\n \u201cThe securities laws are not the appropriate vehicle to regulate\u00a0climate\u00a0change nor to correct racial injustice or intimidate companies regarding political spending,\u201d Sen. Patrick Toomey, R-Pa. and ranking member of the committee,\u00a0said in his opening statement<\/a>. \u201cThat is why we have environmental, civil rights, and political spending laws.\u201d\u00a0<\/p>\n Gensler\u00a0responded to [that and] similar GOP assertions by emphasizing that investors are demanding such disclosures. \u201cIt\u2019s the investor community that gets to decide what\u2019s material to them,\u201d said\u00a0Gensler<\/strong>, a former chairman of the Commodity Futures Trading Commission and a former Goldman Sachs executive.\u201d<\/p>\n<\/blockquote>\n Acting SEC Chair, Commissioner Allison Herren Lee, had just one week before that hearing announced enhanced climate change actions:\u00a0<\/p>\n \u201cToday, I am directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings. The Commission in 2010 provided guidance to public companies regarding existing disclosure requirements as they apply to climate change matters. [\u2026] Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future.[\u2026]\u201d\u00a0<\/p>\n<\/blockquote>\n Although while a private securities lawyer, previous SEC chair Jay Clayton had urged client companies<\/a> to make voluntary material climate risk disclosures to investors, as SEC chair he had rolled back<\/a> ESG (Environmental, Social and Governance) disclosures.<\/p>\n Meanwhile, after Federal Reserve Chair Jerome Powell (who had been nominated as a Fed governor by President Obama but then elevated to chair by President Trump), had reiterated climate change threats to the financial system, 47 Republican members of Congress wrote to him<\/a> and Vice-Chair Randal Quarles, arguing that local zoning rules were the problem and that regulator actions could harm the oil-and-gas industry that is unpopular to \u201ccertain vocal lawmakers:\u201d\u00a0<\/p>\n \u201cIt is worth noting that enhanced risks from wildfires in the West or hurricanes in the Gulf of Mexico or East Coast are cited as reasons for imposing additional climate-focused standards by financial institutions. Yet, these enhanced risks to insured property could also be attributable to poor local zoning standards and building policies that increase the density of commercial and residential structures. Lenders could well benefit from greater prudence by local governments and may show these sites should not have been built upon in the first place\u2014with or without climate change impacts. [\u2026]\u00a0Lastly, we are also concerned that introducing climate change scenarios into stress tests could accelerate the ill-advised pattern of \u201cde-banking\u201d legally operating businesses in industries, such as coal and oil and gas, that are politically unpopular to certain vocal policymakers.\u201d<\/p>\n<\/blockquote>\n Just last month, Fed governor Lael Brainard gave a speech entitled: \u201cThe Role of Financial Institutions in \u201cTackling the Challenges of Climate Change<\/a>:<\/p>\n \u201cClimate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad.\u00a0Future financial and economic impacts will depend on the frequency and severity of climate-related events and on the nature and the speed at which countries around the world transition to a greener economy.\u201d<\/p>\n<\/blockquote>\n I am sure that the Fed governors will follow the science and disregard the nattering from the Hill.<\/p>\n Also, Treasury Secretary Janet Yellen has told world leaders\u00a0<\/a>\u201cwe understand the crucial role that the United States must play in the global climate effort.\u201d Yellen is also expected to nominate former Obama Deputy Treasury Secretary Sarah Bloom Raskin as the department\u2019s first climate czar<\/a>.<\/p>\n So, lots of climate change reality is happening in the financial regulatory world, except with some members of Congress and, also, over at the obscure but powerful national bank regulator, the Office of the Comptroller of the Currency (OCC), where its Trump-appointed acting comptroller Brian Brooks pushed through a regulation \u201con his way out the door<\/a>\u201d in January:\u00a0<\/p>\n \u201cThe OCC\u2019s Fair Access to Financial Services rule was finalized a day after current OCC head Brian\u00a0Brooks\u00a0announced his resignation. The rule seeks to require banks to provide quantitative metrics proving the risks that lead them to deny services to potential clients.\u00a0While some conservative think tanks and segments of industries that feel threatened by issues over which banks have increasingly denied services including lending \u2014 such as in energy, arms manufacturing, and agriculture \u2014 supported the rule,\u00a0Brooks\u2019 last move on his way out the door is not just opposed by the largest banks, but faced widespread opposition from legal scholars and environmental, social and governance experts. Critics have referred to it as the \u201cgunmaker\u2019s and oil drillers rule.\u201d<\/p>\n<\/blockquote>\n President Biden is soon expected to nominate a replacement for Brooks.<\/p>\n Members of the House Select Committee on the Climate Crisis, joined by Senators, had slammed that OCC rule<\/a>\u00a0in a letter. One of the signers, Rep. Sean Casten (IL), \u00a0along with Sen. Dianne Feinstein (CA), just last week re-introduced their climate risk disclosure bill<\/a>.<\/p>\n In the last Congress, U.S. PIRG and its sister organization, Environment America, had backed a similar Casten bill<\/a>. We are reviewing the new proposal. Our joint statement on the President Biden\u2019s climate policy plans from January is here<\/a>.<\/p>\n\n
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