Treasury Secretary (and former Chair of the Federal Reserve) Janet Yellen, in her opening remarks during her first appearance as head of the Financial Stability Oversight Council, identified climate change as "an existential threat" and as "a tremendous risk to our country's financial stability." Indeed, when identifying her agenda for the Financial Stability Oversight Council, addressing climate change was designated as one of the top three priorities.
This agenda is similar to that propounded by numerous other government figures and regulatory bodies in the Biden Administration. Several regulators--including the SEC, which is focused on the financial sector--have indicated a focus on climate change, and are beginning the process of implementing regulations in service of that vision.
Although the broader significance of Secretary Yellen's remarks is still to be seen, it is noteworthy that many of the various regulatory impulses from the Biden Administration concerning climate change appear to be emanating from financial regulators, which is not the scenario that many would consider the most natural or obvious. This suggests that much of the government effort concerning climate change may be developed through and by regulations of the financial sector, which would be an indirect method of proceeding (as opposed to direct action by the EPA, for example).
Third, we cannot only look back and learn the lessons of last year. We must also look ahead, at emerging risks. Climate change is obviously the big one. It is an existential threat to our environment, and it poses a tremendous risk to our country’s financial stability. We know that storms will hit us with more frequency, and more intensity. We know warming temperatures might disrupt food and water supplies, leading to unrest around the world. Our financial system must be prepared for the market and credit risks of these climate-related events. But it must also be prepared for the best-possible case scenario: that we begin a rapid transition to a net-zero carbon economy, which also creates potential challenges for financial institutions and markets. On all these fronts, the Council has an important role to play, helping to coordinate regulators’ collective efforts to improve the measurement and management of climate-related risks in the financial system.