Climate change is already having a major economic and financial impact on the United States, according to US Treasury Secretary Janet Yellen, and warned that this may trigger asset value losses in coming years so much so that it could cascade through the U.S. financial system.
Yellen in a speech prepared for delivery at the advisory board’s first meeting said there has been a five-fold increase in the annual number of billion-dollar disasters over the past five years, compared to the 1980s, even after taking into account inflation.
“As climate change intensifies, natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system. And a delayed and disorderly transition to a net-zero economy can lead to shocks to the financial system as well,” she said in the remarks, adding that severe storms and wildfires in states like California, Florida, and Louisiana, tornadoes across the South and intensifying storms on the West Coast show how climate change is accelerating.
This is after the U.S. government in January reported that 2022 tied 2017 and 2011 for the third highest number of billion-dollar disasters in the country, with a total price tag of at least $165 billion in a year that recorded 18 weather and climate disasters that cost at least $1 billion each, including two tornado outbreaks in the south and southeast in March and April, and massive wildfires across the west.
The country’s efforts to mitigate the risks that climate change poses to financial stability would be boosted by the new Climate-related Financial Risk Advisory Committee, set up last October by the Financial Stability Oversight Council (FSOC), Yellen said.
Read also: Canada releases final guidelines for banks to mitigate climate change risks
The meeting comes amid new regulations on climate-related risk management issued by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp (FDIC) and the Federal Reserve after FSOC, a top U.S. regulatory panel, first identified climate change as an “emerging threat” to U.S. financial stability in October 2021.
A proposal to collect data from insurers to assess climate risk has also been issued by the Federal Insurance Office and the Fed had earlier in the year said it would conduct a pilot climate scenario analysis to study the bank’s climate risk-management practices.
Meanwhile, the U.S. Securities and Exchange Commission is due to release a new rule on companies’ climate-related disclosures in April.
However, the Biden administration is facing oppositions from Republicans, who maintained the agencies have written rules outside of the legal process and they want to use their slim control of the U.S. House of Representatives to constrain administrative oversight of climate rules and other issues.
Yellen said climate-related events had already prompted insurers to raise rates or stop providing insurance in high-risk areas, which could have devastating consequences for homeowners and their property values and expressed concerns that it could in turn could spill over to other parts of the financial system.
Story was adapted from Reuters.
