Yesterday I had the opportunity to testify at a hearing held by the House Financial Services Subcommittee on Consumer Protection and and Financial Institutions entitled “Addressing Climate as a Systemic Risk: The Need to Build Resilience within Our Banking and Financial System.”
You can watch a webcast of the full hearing here (my oral testimony starts at about the 24-minute mark) and here is a link to my full written testimony. The other three majority witnesses, Ms. Hilary Allen, Ms. Mayra Rodriguez Valladares, and Mr. Steven Rothstein, provided excellent testimony as well.
This hearing could not have been more timely, as the Pacific Northwest reels from an unprecedented heat wave—clearly influenced by climate change—and as new evidence emerges of how Exxon has deliberately and systematically worked to undercut climate action in the United States.
Given the serious risks posed by climate change, concurrent and complementary administrative, regulatory, and legislative actions to strengthen climate risk disclosures are urgently needed. UCS has previously submitted comments to the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Housing Finance Agency to highlight each body’s role in ensuring these outcomes. We have also endorsed Congressional action, including organizing a letter of support for the Climate Risk Disclosure Act of 2021 (introduced by Rep. Sean Casten, D-IL). We’re encouraged by President Biden’s recent Executive Order on climate-related risk disclosure which calls for a report outlining a comprehensive whole-of-government Climate-Related Financial Risk Strategy.
Below are the remarks I offered in my oral testimony.
Hello and thank you, Chairman Perlmutter, Ranking Member Luetkemeyer, and Members of the Subcommittee, for providing me the opportunity to testify remotely today on the systemic risks of climate change. My name is Rachel Cleetus, and I am the policy director and lead economist for the climate and energy program at the Union of Concerned Scientists.
Summer has barely begun, and we are already in the midst of a stunning drought in much of the western U.S. Record-setting heatwaves are ongoing, including the unprecedented one in the Pacific Northwest. The Midwest has been hit by heavy rain and flash flooding. The wildfire season is underway, setting up to be yet another intense one. The hurricane season is projected to be another above-normal one. Meanwhile, the COVID-19 pandemic and the economic crisis are far from over.
What we’re experiencing this summer is part of a very sobering trend. In addition to steadily rising temperatures, climate change is also driving accelerating sea level rise and ocean acidification. Many facets and sectors of the economy are at risk, including infrastructure, agriculture, fisheries, insurance, real estate and tourism. The impact on the health, safety and productivity of workers, especially those who work outdoors, is also significant.
In 2020, the nation experienced a record-breaking 22 billion-dollar-plus extreme weather and climate related disasters. Climate-related infrastructure disruptions are mounting—roads, bridges, rail lines, air travel and power infrastructure disrupted by extreme heat, floods, storms and wildfires. The electricity system, which underpins our daily lives, has repeatedly failed. Heatwaves, for example, put enormous pressure on the power grid, decreasing the efficiency and availability of some electricity resources at the same time as demand for electricity for cooling increases. Resulting power outages can trigger cascading effects, including public health risks, business interruptions, and loss of other critical services that depends on electricity.
Meanwhile, the heat-trapping emissions that are fueling climate change continue to rise—with just a brief dip due to the COVID-19 pandemic. The science is clear: to help limit some of the worst impacts of climate change, we have to cut our emissions at least in half by 2030 and to net zero no later than 2050.
Yet, today, our economic and financial systems are not yet sufficiently accounting for these grave climate risks, nor are they doing enough to help drive a rapid shift to a net zero economy. A combination of short-sightedness, inadequate policies, the outsize power of fossil fuel companies, and business-as-usual inertia is getting in the way of the transformative changes we need. If we fail to take action now, the potential for severe shocks to our financial system will grow—and, as with previous crises, the impacts will be especially harsh for those who can least afford it, low- and fixed-income households and communities of color.
Instead, we have an opportunity now to ensure that our economy and our financial system are fairer, more climate-resilient, and compatible with a low-carbon, secure and prosperous future.
To address climate risks to the financial sector, we need:
A coordinated and comprehensive approach, from the national to the international level, and to the local level, with Congress, financial regulators and the federal government each playing their part in supporting a robust framework for climate risk disclosure.
Mandatory Risk Disclosure to Help Correct Market Failures. The financial system requires transparent, uniform disclosure of climate risks, based on the best available science. Fossil fuel companies and their investors—who bear an outsize responsibility for climate change—must face market pressure to change their business model and lending practices and stop doubling down on fossil fuel investments. Voluntary (and unaudited) climate risk disclosures are woefully inadequate. We must also invest proactively in ensuring that workers and communities who currently depend on fossil fuels are not left behind. Delaying this inevitable transition will only increase the financial and human toll.
Congress must pass legislation to set up an Advisory Committee on Climate Risk on the Financial Stability Oversight Council (FSOC), require climate risk disclosure in the marketplace, and take steps to prioritize the well-being of households and communities that bear disproportionate harms from climate change and from the transition away from fossil fuels.
Much more is at stake than simply the fiscal well-being of US businesses. The public relies on these companies to grow and manage our savings, investments, pension funds, future energy choices, and other long-term portfolios. Market rules and financial safeguards must help deliver the outcomes we need to protect our health, welfare and prosperity—not simply profits for the powerful and elite few. We also need a transformative climate strategy that addresses underlying systemic challenges like structural racism and socioeconomic inequities.
We have urgent choices before us. Because it is our actions that are the source of the heat-trapping emissions causing climate change. And here, in one of the most powerful economies in the world, we also help set the rules of the market. We cannot have a healthy economy if the planet is on fire and vast areas are underwater.
Thank you for this opportunity to testify today and for your efforts to protect our financial system from climate risks and to ensure it helps contribute to the climate solutions we so urgently need.