Ginny Cleaveland, Deputy Press Secretary, Federal Communications, Sierra Club, ginny.cleaveland@sierraclub.org, +1 415 508 8498 (Pacific Time)
WASHINGTON, DC — Yesterday, the Financial Stability Oversight Council (FSOC) issued its 2023 annual report, noting that escalating climate change-driven disasters are “imposing significant costs on the public and the economy, with economic costs from climate change expected to grow.”
Building on its 2022 report and the tumultuous year it has been for climate-related disasters and property and casualty insurance, this year’s report highlights the critical role of the housing market in the financial system and recommends that “agencies collaborate on analysis related to the intersection of physical risk, real estate, and insurance in particular” and discusses how changes in property insurance market coverage could affect mortgage markets.
On physical risks, the report notes that recent decisions by insurers to withdraw homeowners coverage in California, Louisiana, and Florida “portend the unfortunate reality that more and more borrowers will be faced with renewal concerns or difficulty obtaining affordable initial insurance policies when they buy a home.”
On transition risks, the report notes that “the U.S. economy is evolving structurally amid…the transition to less fossil fuel use” and that “the impacts of transition risk may result in added costs for some firms and communities, even as they potentially reduce the overall risk associated with unmitigated climate change.” The Council recommends continued state and federal agency coordination on identifying and assessing climate-related financial risk indicators for banking, insurance, and financial markets to identify financial system vulnerabilities.
In response, Ben Cushing, Campaign Director for the Sierra Club’s Fossil-Free Finance campaign, issued the following statement:
“The 2008 Global Financial Crisis was caused in significant part by excessive risk-taking by non-bank financial institutions. Congress responded by creating the Financial Stability Oversight Council, giving it a clear mandate to place non-banks under federal supervision if they are posing financial stability risks. Investments in fossil fuel expansion are driving climate change and creating financial stability risks. Based on its authority and recently updated guidance, FSOC must now review the risks posed by systemically-important institutions, prioritizing the giant asset managers and insurance companies contributing to financial instability by fueling the climate crisis.”
BACKGROUND
A 2021 Presidential Executive Order directed the Financial Stability Oversight Council (FSOC) to address growing systemic climate-related financial risk, part of what the administration dubs a whole-of-government approach to climate change. While the FSOC has made some progress, the U.S. financial sector lags other jurisdictions, with climate-related impacts and systemic risks to financial stability far outpacing FSOC and its member agencies’ responses. The climate crisis is outpacing FSOC’s and regulators' response to the growing risks.
Issue experts and advocacy groups argue financial regulators must require publicly-available transition and net-zero plans with measurable metrics and targets that don’t rely on unproven technologies or offsets. Regulators must also address the disproportionate impacts of climate change to BIPOC and vulnerable communities, and designate non-bank financial companies – particularly major insurers, private equity firms, and asset managers – for enhanced federal supervision, among other urgent regulatory actions needed to mitigate climate-related financial risk.
About the Sierra Club
The Sierra Club is America’s largest and most influential grassroots environmental organization, with millions of members and supporters. In addition to protecting every person's right to get outdoors and access the healing power of nature, the Sierra Club works to promote clean energy, safeguard the health of our communities, protect wildlife, and preserve our remaining wild places through grassroots activism, public education, lobbying, and legal action. For more information, visit www.sierraclub.org.