General News

US financial regulator under Trump recommends pricing carbon and supporting global action

Below is a briefing on breaking news there with global financial implications: A major financial regulator has found climate change is a major threat to US markets and that the US Government should take immediate action to reduce this risk, not only in financial regulation, but in broader fiscal policy and international forums.

This is in line with a Development Bank of Southern Africa-supported study last year, which warned that heavily coal dependent South Africa faces a R1.8 trillion ($125 billion) climate “transition risk”. In the forward, DBSA chairperson Patrick Dlamini said “much of this risk [is] apparently due to fall on the public balance sheet, such transition risk could strain the public finances, jeopardise the sovereign credit rating and the government’s ability to pursue a progressive social agenda.”

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The Commodities and Futures Trading Commission (CFTC), one of the most powerful US financial regulators, has released a report finding that climate change is a major threat to US markets and that the US Government should take immediate action to reduce this risk, not only in financial regulation, but in broader fiscal policy and international forums. 

 

The report, developed by the Climate-Related Market Risk Subcommittee, also makes recommendations on how lawmakers, regulators, and the financial sector can manage this risk. The report recommendations include: 

  • Establishing a price on carbon as soon as possible, consistent with the Paris Agreement

  • Engage actively to ensure that climate risk is on the agenda of G7 and G20 meetings and bodies 

  • The United States should consider integration of climate risk into fiscal policy, particularly for economic stimulus activities covering infrastructure, disaster relief, or other federal rebuilding. Current and ongoing fiscal policy decisions have implications for climate risk across the financial system. (Recommendation 8.1)

Recommendations are summarised from p.12 to p.15 (labelled as p.vi to p.ix) of the full report (PDF).

 

Adopted by a unanimous vote by the subcommittee on 8 September, this report marks the first time that a US regulatory agency has so forcefully acknowledged the threat of climate change to the economy and made policy recommendations to address it — all while operating under the Trump administration’s climate denial. Members of the approving subcommittee include major finance, oil, and agricultural corporations, including Citigroup, Vanguard, JP Morgan, Cargill, BP, and ConocoPhillips, as well as experts on climate-related  financial risk such as Bob Litterman, Mindy Lubber, and Ben Caldecott.

 

The US lags far behind other countries on this front. France leads the world in enacting mandatory climate-related disclosure requirements, and Asian regulators, such as those in Singapore and Japan, are also taking decisive action. I’ve attached a backgrounder on the climate actions taken by financial regulators around the world for context. 

 

Please see the attached report and press release, and let me know if I can further be of assistance. 

 

Contacts:

 

Bob Litterman, Chair of the CFTC Climate-Related Market Risk Subcommittee, and former head of risk management at Goldman Sachs; blitterman@gmail.com

David Gillers, CFTC, Chief of Staff for Commissioner Rostin Behnam, DGillers@cftc.gov

 

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