In a recent report, the Board of Governors of the Federal Reserve acknowledged for the first time the impacts of Climate Change on financial markets and overall stability, doubling down on a recent statement by Chairman Jerome Powell that the Federal Reserve is “actively … getting up to speed” on Climate Change risks and its impacts to the financial system. The Federal Reserve distinguishes between sudden shocks to financial conditions and long-term, gradual changes. The recent report notes that Climate Change risk is a combination of shocks that result in economic vulnerabilities over time, which are difficult to research and measure.

In the Federal Reserve’s view, acute hazards, such as storms, floods, droughts, or wildfires, can quickly change future economic conditions or the value of assets which could result in significant financial instability. In addition, public perception of risk could affect perceived values, too.

The Federal Reserve proposes several changes to address Climate Change risk, such as:

• Insisting on increased measurement and disclosure within financial markets and investors to improve climate risk pricing and reduce asset price volatility

• More research on the relationships between climate, the economy, and markets to improve predictability of Climate Change events and effects

• More planning on adapting to the physical effects of Climate Change through technologies and policy changes, to reduce physical risks of Climate Change.

2020 is also the year that momentum rose in the Security & Exchange Commission (SEC) to take more seriously Environment, Social, and Governance (ESG) issues of private companies. SEC Commissioner Allison Herren Lee wrote in an op-ed that the SEC is obligated to consider Climate Change in investment decisions, as it affects “… the livability of the planet.”

The first step in effectively addressing these issues is to develop consistent reporting standards for ESG. Recently, the International Federation of Accountants proposed a board – expected to be formed in 2021 – to develop new international sustainability standards to determine necessary measurements and reporting standards for different industries or company types.

It is likely that President Biden-selections to replace senior officials in the Federal Reserve and SEC in 2021 will likely push this process along more vigorously.

CCES has the experts to help you form and execute a useful Climate Change program to determine goals and progress and inform your stakeholders. Contact us today at karell@CCESworld.com or at 914-584-6720.