Report Urges Urgent Action from Financial Regulators to Address Climate Change
Yet another report in a long line of reports is out urging urgent action from financial regulators, including insurance regulators, the Federal Reserve and the Securities Exchange Commission.
The report was commissioned by the U.S. Commodity Futures Trading Commission and put together by a panel of 35 members, including representatives of Citigroup, Goldman Sachs Group Inc., Morgan Stanley, S&P, Marsh & McLennan Cos., and one former insurance regulator.
It was approved by the panel on Tuesday.
What’s so special about this report?
“It’s the first time something like this has been done under auspices of a U.S. financial regulator,” said Dave Jones, a former California insurance commissioner who is a member of the panel that put the report together.
Jones, who now resresents the Nature Conservancy, called the report a “comprehensive” look at risks to all financial markets.
The report includes detailed recommendations for what financial regulators should be doing to address risks.
“Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” the report states. “Climate change is already impacting or is anticipated to impact nearly every facet of the economy, including infrastructure, agriculture, residential and commercial property, as well as human health and labor productivity. Over time, if significant action is not taken to check rising global average temperatures, climate change impacts could impair the productive capacity of the economy and undermine its ability to generate employment, income, and opportunity.”
The report keys in on physical risks such as extreme weather and rising sea levels and transition risks from an economy having to shift from a reliance on fossil fuels to develop more clean energy solutions, both of which “could interact with each other, amplifying shocks and stresses.”
The report recommends that regulators require insurers to assess how their underwriting activity and investment portfolios may be impacted by climate-related risks, and based on that assessment that they require them to address and disclose these risks.
Gray rhinos vs. black swans sounds like the makings of a great monster flick reboot.
Munich Re has released a new white paper, Reimagining Resilience in a Post Pandemic World, which explores how society might avoid the disastrous consequences associated with climate change risk.
The COVID-19 pandemic has led to societal and economic disruption on a global scale, while climate change could also result “in far-reaching and detrimental societal and economic impacts.”
The white paper notes that the work to promote resiliency in the face of climate change must be collective, with the insurance industry playing a key role.
“The insurance industry has a tremendous opportunity to help close this protection gap,” the paper states. “Effective methods include the offering of innovative risk transfer solutions for weather perils and the development of risk transfer products and services that incentivize resilience and risk mitigation.”
The report compares pandemics and climate change, calling both “systemic by nature.” Despite the recent lessons of SARS, Swine Flu and Zika, the notes that the world was caught “relatively flat-footed by COVID-19,” as economies ground to a halt and commerce and social interaction were altered.
“Recent natural disasters, such as the Australian wildfires in 2019/2020 and catastrophic flood events suffered by southeastern Texas over the past five years, including Hurricane Harvey and Tropical Storm Imelda, serve as a similar bellwether,” the report states. “The need for longer-term prevention strategies in these areas was identified long before; yet, these were sidelined in favor of short-term priorities. If vulnerable regions continue to deprioritize long-term strategies, the risk of unexpected and severe global disruption due to extreme weather events and knock-on effects, from supply chain disruption to food and water shortage and migration pressure, will grow.”
To change society must come to grips with the notion that these events are not anomalies or “black swans,” but they are more like “gray rhinos,” events that are highly probable, highly impactful and often neglected.
Climate change academic Jesse M. Keenan is headed to Jupiter.
Keenan, a noted scholar on climate change and the built environment and an associate professor at Tulane University, is joining the California-based provider of predictive data and analytics for climate risk and resilience as an advisor.
Keenan formerly led climate adaptation research initiatives at the Federal Reserve Bank of San Francisco.
Keenan is considered an expert on the intersection of climate change adaptation and the built environment, including design, engineering, regulation, planning and financing. He was a special government employee advisor to the U.S. Commodity Futures Trading Commission before joining Jupiter. Keenan also served as chair of the U.S. Community Resilience Panel for Buildings and Infrastructure Systems under the Obama White House Climate Action Plan.
He’s currently a U.S. delegate to the UN’s Intergovernmental Panel on Climate Change (IPCC).
“2020 has proven beyond a doubt that the private sector has much work to do to prepare for future disruptions, and this is especially true regarding the risks that climate change presents to the stability of financial markets,” Keenan said in a statement.
Jupiter offers commercial services to asset owners in infrastructure, financial services including insurance, banking and asset management, energy and real estate, and the public sector.
Orange is the New Norm
It’s hard to argue with orange skies.
An article by CNN this week, California’s wildfires show how climate change is making forced evacuations and power shut-offs the norm, ties in the wildfires plaguing the state to climate change.
The article explains that “human-caused climate change” is causing temperature extremes to climb higher, making vegetation drier, and affecting fire behavior.
California wildfires have increased in size by eight times since the 1970s, while the annual area burned by fires has risen by nearly 500%, according to CNN meteorologist Robert Shackelford.
CalFire reported this week the state has seen a record 2.2 million acres burned so far this year. Two of the three largest fires in state history are burning in the San Francisco Bay Area. More than 14,000 firefighters are battling those fires and dozens of others more around California.
Skies throughout the state taken on an orange hue in evenings and it’s often overcast without the presence of clouds. Ash sprinkles down even in areas that aren’t near the fires.
California saw 4,927 fires that burned 118,000 acres this time last year. In 2020, there have been 7,606 blazes thus far. “Wildfires are a big part of the seasonal challenge,” Gov. Gavin Newsom told CNN. “The challenge we’re facing now is the extreme fire events that we believe are climate induced.”
Newsom has pointed directly at climate change as the source of the extreme heat wave and a primary factor in the scores of wildfires plaguing California, according to CNN.
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