Ostrich head in sand

New finance agency leaders taking agencies' heads out of sand on climate change

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. 

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Ed Mierzwinski
Senior Director, Federal Consumer Program

Author: Ed Mierzwinski

Senior Director, Federal Consumer Program

202-461-3821

Started on staff: 1977
B.A., M.S., University of Connecticut

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.

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's 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't like it).

Last week, Gary Gensler, President Biden's extremely well-qualified nominee to head the Securities and Exchange Commission (SEC), pushed back hard on a number of questions from Pat Toomey (PA) and others at his confirmation hearing over whether climate risks were "material" to public companies if they didn't show up as a big number on their balance sheets.

“The securities laws are not the appropriate vehicle to regulate climate change nor to correct racial injustice or intimidate companies regarding political spending,” Sen. Patrick Toomey, R-Pa. and ranking member of the committee, said in his opening statement. “That is why we have environmental, civil rights, and political spending laws.” 

Gensler responded to [that and] similar GOP assertions by emphasizing that investors are demanding such disclosures. "It’s the investor community that gets to decide what’s material to them,” said Gensler, a former chairman of the Commodity Futures Trading Commission and a former Goldman Sachs executive."

Acting SEC Chair, Commissioner Allison Herren Lee, had just one week before that hearing announced enhanced climate change actions: 

"Today, 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. [...] 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.[...]" 

Although while a private securities lawyer, previous SEC chair Jay Clayton had urged client companies to make voluntary material climate risk disclosures to investors, as SEC chair he had rolled back ESG (Environmental, Social and Governance) disclosures.

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 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 "certain vocal lawmakers:" 

"It 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—with or without climate change impacts. [...] Lastly, we are also concerned that introducing climate change scenarios into stress tests could accelerate the ill-advised pattern of “de-banking” legally operating businesses in industries, such as coal and oil and gas, that are politically unpopular to certain vocal policymakers."

Just last month, Fed governor Lael Brainard gave a speech entitled: "The Role of Financial Institutions in "Tackling the Challenges of Climate Change:

"Climate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad. Future 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."

I am sure that the Fed governors will follow the science and disregard the nattering from the Hill.

Also, Treasury Secretary Janet Yellen has told world leaders “we understand the crucial role that the United States must play in the global climate effort.” Yellen is also expected to nominate former Obama Deputy Treasury Secretary Sarah Bloom Raskin as the department's first climate czar.

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 "on his way out the door" in January: 

"The OCC’s Fair Access to Financial Services rule was finalized a day after current OCC head Brian Brooks announced his resignation. The rule seeks to require banks to provide quantitative metrics proving the risks that lead them to deny services to potential clients. While some conservative think tanks and segments of industries that feel threatened by issues over which banks have increasingly denied services including lending — such as in energy, arms manufacturing, and agriculture — supported the rule, Brooks’ 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 “gunmaker’s and oil drillers rule.”

President Biden is soon expected to nominate a replacement for Brooks.

Members of the House Select Committee on the Climate Crisis, joined by Senators, had slammed that OCC rule in a letter. One of the signers, Rep. Sean Casten (IL),  along with Sen. Dianne Feinstein (CA), just last week re-introduced their climate risk disclosure bill.

In the last Congress, U.S. PIRG and its sister organization, Environment America, had backed a similar Casten bill. We are reviewing the new proposal. Our joint statement on the President Biden's climate policy plans from January is here.

Cover image, Ostrich, via Flickr, by A Siegel,  CC Some Rights Reserved.

Ed Mierzwinski
Senior Director, Federal Consumer Program

Author: Ed Mierzwinski

Senior Director, Federal Consumer Program

202-461-3821

Started on staff: 1977
B.A., M.S., University of Connecticut

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.