The Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (CFTC) issued a report about the US financial system’s approach to managing climate change. Although published in September, the report was perhaps under sold and publicized somewhat. However, the significance of the report has now come to prominence.
The report, titled “Managing Climate Risk in the U.S. Financial System”, has identified multiple key findings regarding climate change and how it will impact the US financial system.One of the key findings is the risk that climate change poses to the US financial system stability. The ability to sustain the economy has also come into question. A key element to the report is the price of carbon. This is because, according to the report, that financial markets “will only be able to channel resources efficiently to activities that reduce greenhouse gas emissions if an economy wide price on carbon is in place at a level that reflects the true social cost of those emissions”.
Still Short of Action
Although the report undoubtedly points the US financial in the right direction and is now said to have gained ‘significant momentum’ following it’s September release, action on the ground remains thin. Climate change remains a very real threat to investors, however asset managers have been accused of providing an incomplete picture to them. Another report by TCFD has warned of the asset managers lack of dedication.
Positive Talk needs to be acted upon
It can’t be denied that the conversation surrounding climate change is very much on the table in the US financial world – and a growing number of people on the global economic scene are now talking positively. However none of this talk has, thus far, led to any concrete plans of action regarding climate risk disclosures, for which there is a pressing need.
Election result could be key
The likelihood of words being turned into action could greatly depend on the outcome of the election on November 3rd. The CFTC report calls for the need to price carbon at levels consistent with the Paris Agreement’s goal of limiting global temperature rise. Given that President Trump withdrew the US from the Paris Climate Agreement, the likelihood of this under his continued tenure would be unlikely. Should President Biden get elected, working towards such goals are more consistent with his policies.