Democratic presidential candidate Sen. Elizabeth Warren targeted Wall Street in her latest plan to combat climate change, saying she would ensure that banks, asset managers and insurers “pay the true cost of climate change.” According to Warren, this would require making big changes to how Wall Street currently does business.
In her plan, Warren states that although it is clear that the entire U.S. financial system is threatened by climate change, Wall Street institutions have exacerbated the crisis by increasing their fossil fuel asset holdings and providing billions in financing to fossil fuel companies. Therefore, in order to address climate change, Warren says it is necessary to reform the financial system.
Her new plan, which is her 14th climate plan, would focus on a number of concerning aspects of the financial system, including climate change financial risk, public disclosure rules around climate change impact on companies, pension funds invested in fossil fuels, insurance companies that underwrite the coal, oil and gas industry and federal regulators that understand climate change.
First off, it would use existing federal regulations to deal with the “systemic risk” posed by climate change. For instance, Warren’s plan calls on the Federal Reserve to use the authority it was granted under the Dodd-Frank Act, enacted after the 2008 financial crisis, to impose “enhanced prudential standards,” or higher capital standards and margin requirement as well as tougher stress testing on financial institutions based on their climate-related risks.
“By using the authorities Congress has already given them, federal regulators can mitigate the climate-related risk in our financial system and help accelerate the transition towards a clean energy economy,” Warren wrote.
Leah Stokes, an assistant professor and researcher on climate change and energy politics at the University of California, Santa Barbara, said Warren’s proposed use of the Dodd-Frank Act was notable and really smart. Stokes said it was a fact that climate change was a systemic risk. As an example, she said that climate change was a risk to financial investment if the U.S. started passing climate policy and those investments became stranded assets.
“It’s also a risk to our planet and that will dramatically undermine our financial system,” Stokes told Earther by phone. “Sea level rise, heat wave, drought – these are not costless impacts. They are already taking a toll on everyday Americans and that will have a financial impact.”
Warren would also direct the Securities and Exchange Commission (SEC) to issue rules requiring companies to publicly disclose how they would likely be affected if climate change continues at its current pace, as well as how they would likely be affected if the world successfully reduces greenhouse gas emissions to meet the targets set in the Paris Agreement. The plan doesn’t stop there, and would also address issues such as SEC rules on climate change expertise on boards of directors and standards used at credit rating agencies.
Pensions are another interesting aspect of Warren’s new finance-centered climate plan. The candidate notes that pension funds are invested in fossil fuels, which she considers risky investments. In her plan, Warren says that she would direct the SEC and the Department of Labor, two government bodies that regulate pensions, to declare that carbon-intensive investments are not consistent with a fund manager’s fiduciary duty to its clients.
She would also focus on insurance companies. According to Warren, even though insurance companies understand the severity of climate risk, they continue to underwrite the fossil fuel companies that are behind the crisis. To address this, Warren states that she will work with Congress to make large insurance companies in the U.S. disclose the size of premiums they derive from coal, oil and gas projects, associated infrastructure and companies.
Warren adds that she will push the SEC to require insurance companies to demonstrate that they have evaluated climate-related risks in their underwriting processes and reserves.
Finally, the candidate states that she would staff her administration with “system financial regulators committed to holding financial institutions accountable for climate risk.” She notably whacks Treasury Secretary Steven Mnuchin here, who she states is either uninformed or lying about the costs of the climate crisis. Warren says she would also work with international allies on resilient financial and environmental policy.
Although all of this sounds great, it’s important to note that Warren isn’t doing that good on the campaign trail at the moment. She hasn’t won a primary in a single state so far. Nonetheless, her campaign swears that the senator will stay in the race until the end, and that she still has a path to the nomination.
Even so, just the fact that she’s bringing up finance as a way to deal with climate change is important in the bigger conversation on how to deal with this crisis. Gernot Wagner, a clinical associate professor at New York University’s Department of Environmental Studies, told Earther in an email that finance was a key factor in moving to a low-carbon, high-efficiency economy.
“Major banks themselves are increasingly viewing fossil fuels as the liability they indeed are,” Wagner said. “Policy ought to help move that transition along. Elizabeth Warren proposing to use the power of the SEC to do just that, for example, is smart policy.”