Hybrid Hearing - Addressing Climate as a Systemic Risk: The Need to Build... (EventID=112867)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Wednesday, June 30, 2021, at 2:00 p.m. (ET) Consumer Protection and Financial Institutions Subcommittee Chairman Perlmutter and Ranking Member Luetkemeyer will host a hybrid hearing entitled, “Addressing Climate as a Systemic Risk: The Need to Build Resilience within Our Banking and Financial System." - - - - - - - - Witnesses for this one-panel hearing will be: • Ms. Hilary Allen, Associate Professor of Law, American University • Dr. Rachel Cleetus, Policy Director, Union of Concerned Scientists • Ms. Mayra Rodriguez Valladares, Managing Principal, MRV Associates • Mr. Steven Rothstein, Managing Director, Ceres Accelerator for Sustainable Capital Markets • Dr. Clifford Rossi, Executive-in-Residence and Professor of the Practice at the Robert H. Smith School of Business, University of Maryland Overview Climate change presents significant and complex risks to the global financial system. More frequent and severe extreme weather events, such as wildfires, floods, and hurricanes, will affect insurers; sea-level rise will impact coastal residents and commercial real estate investors, and changing weather patterns and droughts will create challenges for agricultural lenders. Additionally, as more economies transition away from carbon either through investor and consumer preference or because of government policy, financial institutions may be exposed to significant changes in asset pricing or market structure. In September 2020, the Commodity Futures Trading Commission (CFTC) released a report finding that “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 November 2020 Financial Stability report from the Board of Governors of the Federal Reserve System (Federal Reserve) found that climate change “increases the likelihood of dislocations and disruptions in the economy, is likely to increase financial shocks and financial system vulnerabilities that could further amplify these shocks.” Over the last several months, the Biden Administration and financial regulators have taken initial steps to evaluate and mitigate climate risks in the financial system. This hearing will explore these developments and legislative proposals to identify and mitigate climate risks that affect the U.S. financial system. Background The Intergovernmental Panel on Climate Change (IPCC) has found that human activity through greenhouse gas (GHG) emissions has already caused the global annual average temperature to rise 1 degree Celsius above pre-industrial levels, and current projections show “[g]lobal warming is likely to reach 1.5 [degrees] Celsius between 2030 and 2052,” and the global annual average temperature will very likely continue to rise if GHG emissions are unconstrained. In November 2016, the Paris Climate Agreement went into effect with the goal of restricting global warming below 2 degrees Celsius and preferably to 1.5 degrees Celsius by reducing GHG emissions. While climate-related risks and negative effects will be more severe at 1.5 degrees Celsius than are currently observed, an increase of 2 degrees Celsius is projected to carry significantly more negative effects, resulting in 2.6 times more extreme heat, twice as many vertebrate and plant species lost, a 2.3 times reduction in crop yields, among other serious environmental consequences. According to a World Meteorological Organization (WMO) climate update issued in May 2021, there is now a 40 percent chance of the global annual temperature temporarily eclipsing the 1.5 degrees Celsius increase above pre-industrial levels in the next five years. Types of Climate Risk in the Financial System Climate-related financial risks are often categorized into physical risks and transitions risks. Physical risks represent the financial and economic costs associated with the increased frequency and intensity of extreme weather events and effects of overall changes in regional and global climate. According the Financial Stability Board (FSB), “economic losses from natural catastrophes have increased in recent decades,” and “the frequency and severity of extreme weather events might increase non-linearly and become increasingly correlated with each other over time.” 10 Figures 1 and 2 in Appendix B illustrate the increasing costs and frequency of extreme weather events and the resulting economic losses. Transition risks describe possible losses that result from economic shifts and government policy frameworks that reduce GHGs and adjust to climate change. Transitioning to a low-carbon economy represents a significant adjustment... Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407959