Big US investors urge regulators to treat climate as systemic risk

Big US investors urge regulators to treat climate as systemic risk

US investors managing nearly $1tn of assets have written to Federal Reserve chair Jay Powell and other regulators urging them to treat climate change as a systemic financial risk.

In a series of letters sent on Tuesday, multibillion-dollar pension funds including Calstrs and the Seattle City Employee Retirement System, as well as the New York State and New York City Comptrollers, called on US authorities “to implement a broader range of actions to explicitly integrate climate change across [their] mandates”.

Among those receiving the demands were the Fed, the Securities and Exchange Commission, the Commodity Futures Trading Commission, state insurance regulators, and the Federal Housing Finance Agency.

“It is more clear than ever that the climate crisis poses a systemic threat to financial markets and the real economy, with significant disruptive consequences on asset valuations and our nation’s economic stability,” the letters warned. “You lead a critically important agency that has a mandate to protect US market stability and global competitiveness. This carries with it a responsibility to act on the climate crisis right now.”

In addition to the investors, the letters are signed by five former members of Congress, several former financial regulators, venture capital groups, trade associations, and large philanthropic foundations. 

Bob Inglis, the former Republican congressman for South Carolina who now leads, a group of conservatives focused on climate change, said the issue was no longer one for partisan debate. “Climate change presents real financial risks to our economy, putting millions of lives and livelihoods at risk,” he said. “This is not a political issue. It’s a scientific issue, it’s a human issue, and it’s a financial issue.”

The pressure to tackle the climate threat comes as president Donald Trump’s administration seeks to make it harder for investors themselves to incorporate environmental concerns in their own strategies. Last month, the US Department of Labor proposed a new rule that would require pension administrators to prove they were not sacrificing financial returns by choosing investments based on environmental, social and governance principles.

At the time, Eugene Scalia, the US labour secretary, said: “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan.”

But the investors who have signed Tuesday’s letter to regulators say they back a “transition to a net-zero future” in terms of carbon emissions. They also encourage authorities to consider the findings of a new report by advocacy group Ceres, which identifies more than 50 specific actions they could take immediately to address climate risk.

EU regulators are also being pressed to use their powers. Last month, a report by research body Finance Watch — written by a board member at the French financial regulator who is also one of the EU’s technical experts on sustainable finance — warned that climate change posed a bigger threat to the bloc’s financial stability than coronavirus. The report concluded that European rules on bank lending to fossil fuel groups must be tightened to address it.

Christine Lagarde, president of the European Central Bank, recently said she was exploring “every avenue available in order to combat climate change”.