Weekly round-up: April 5-9

The top five climate risk stories this week

**Programming note** Issues securing interviewees this week means there will be no deep-dive article on April 12. The Thursday comment article will be out as usual.

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1) Biden planning executive order on climate risks and disclosure — Bloomberg

President Biden is poised to sign an executive order directing his administration to “develop a strategy on climate-related risks for public and private financial assets”, Bloomberg reports.

A draft document reviewed by Bloomberg News says the plan, to be drawn up by National Economic Council director Brian Deese and National Climate Advisor Gina McCarthy, would direct the Financial Stability Oversight Council (FSOC) to publish a report in six months on efforts to tackle climate risks at each US financial regulatory agency.

Over two months into Biden’s term, most US federal and state financial regulators have yet to engage with climate risk and lag behind their global peers, research by sustainability non-profit Ceres shows.

In its latest report, the group revealed that five major federal watchdogs still do not have senior staff focused on climate in place, including bank regulators the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC).

Source: Ceres

“The good news is that more regulators than ever are stepping up and speaking out about the systemic financial risks of climate change. The bad news is that they aren’t moving fast enough, many of their peers aren’t moving at all yet, and the dangers of inaction are mounting by the day,” says Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets.

The report laid out four steps all US watchdogs should take to “leapfrog into global leadership on the climate crisis”: affirming the systemic nature of the climate crisis; integrating climate change into prudential supervision; proactively linking strategies to combat climate risks with Covid-19 pandemic recovery efforts and efforts to dismantle structural racism; and coordinating action at the state, federal and international level.

2) FSB pledges climate risk roadmap

The head of the Financial Stability Board said the global standard-setter would produce a “coordinated, forward-looking roadmap” to help public authorities get to grips with climate risks.

In a letter to the finance ministers of the Group of 20 countries and central bank governors, Randal Quarles — vice-chair for supervision at the Federal Reserve and chair of the FSB — wrote that the blueprint would leverage work already underway at other standard-setters and international bodies, while using the group’s own mechanisms to “identify vulnerabilities and build consensus on ways forward”.

Quarles added that the recent “proliferation of work by various bodies on climate change” has underlined “the importance of strategic vision, good coordination, and clear communication to the G20 and the public”.

He also said that the FSB would apply for observer status with the Network for Greening the Financial System (NGFS) and invite the group of climate-focused central banks and supervisors to pitch in with its own climate programme.

The FSB currently has three climate-related workstreams, focused on “data, disclosures, and regulatory and supervisory practices, and bringing together work being carried out by standard setting bodies and international organizations”. Last year, the group published its first report on the financial implications of climate change.

3) UK pensions regulator to press trustees on climate action

Pension trustees in the UK face sanctions if they don’t comply with new climate rules drawn up by the domestic watchdog. 

The Pensions Regulator (TPR) unveiled its climate change strategy on Wednesday, which obliges the trustees of big schemes to produce regular climate risk disclosures and “maintain oversight” of the climate threats they face. Schemes with over 100 members are expected to produce a statement of investment principles on stewardship and environmental, social and governance considerations by October 2021. Those in scope of UK-wide rules on mandatory climate risk disclosures are also expected to comply with this requirement. Failure on either front could be met with enforcement action, TPR said.

In addition, to gauge schemes’ resilience to climate risks the regulator will review the results of trustees’ climate scenario analyses.

Under the Pension Schemes Act, funds with at least £5 billion of assets and all master trusts will be required to produce climate risk disclosures from October. By the end of 2023, TPR anticipates that schemes representing 74% of occupational pensions assets will be covered by the mandate.

4) IMF reveals carbon footprint of countries’ banking systems

Indian banks have the most carbon-intensive loan portfolios, data from the International Monetary Fund (IMF) shows, with those in Eastern Europe and Asia close behind.

The Fund published a new climate change indicators dashboard on Wednesday, covering four areas: economic activity and climate, cross-border, financial, physical and transition risks, and government policy indicators.

It includes a ranking of 41 countries’ banking systems by their carbon footprint-adjusted loans to total loans, with data as of 2015. Indian banks financed 771.5 tons of CO2 for each $1 million of lending, Kazakhstan banks 651.5 tons and Estonian banks 373.9 tons. Swiss banks had the least carbon-intensive portfolios of the sample, financing 12.5 tons of CO2 per $1 million loaned.

Source: IMF

Large, developed countries including the US, UK and Australia did not feature in the dataset. Nor did mainland China.

Other indicators on the IMF’s dashboard also show which countries face the most severe climate risks. Under the “hazard and exposure” measure, Russia, China, India and the US are among the highest-risk countries. However, those countries with the least capacity to cope with climate risks are mostly in Africa and central Asia.

The IMF plans to update the dashboard monthly, with new indicators, greater country coverage and granularity to be added over time.

5) California launches climate risk disclosure group

Governor Newsom of California set up a Climate-Related Risk Disclosure Advisory Group on Monday to spearhead development of reporting standards for the state.

The team, which will work out of the Governor’s Office of Planning and Research in coordination with Stanford University’s Sustainable Finance Initiative, will identify national and international best practice on climate disclosure and address the “unique challenges and opportunities that might arise when applying climate risk disclosure to a public sector decision-making context”.

Kate Gordon, Director at the Governor’s Office of Planning and Research, will co-head the group with Stanford’s Alicia Seiger. “For every dollar we spend mitigating climate risks, we can save at least six dollars in disaster response, so understanding and adapting to these risks is not just smart policy — it’s our fiscal responsibility,” said Gordon.

The 19-strong group includes sustainable finance experts Bill Weil, of Tempest Advisors, and Carlos Sánchez, director of climate resilience investments at Willis Towers Watson. Academics including Tim Profeta, a steering committee member of the Climate Risk Disclosure Lab, are also represented.


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First image: lev radin / Shutterstock. Fourth image: Bumble Dee / Shutterstock. All other images under free media license through Canva