The U.S. Commodity Futures Trading Commission (CFTC) put together a 35-member panel from business, insurance, social and political organizations like Citigroup, Goldman Sachs Group Inc., S&P, Marsh & McLennan Co., U.S. Congress, Non-Governmental Organizations like Nature Conservancy etc. to respond and suggest in a report what kind of actions should be taken to protect the US economy and society from any systemic risks arising from climate change.
by T.C.
©The law of intellectual property is prohibited in any way unlawful use/appropriation of this article, with heavy civil and criminal penalties for the infringer.
Photo by the website https://en.wikipedia.org, Author: US government, License Public Domain
This Committee was set up for the first time on the initiative of Supervisory Authority U. S. Commodity Futures Trading Commission and this is the first time this has been done by any other supervisory body.
The specific report is entitled «Managing Climate Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission», (196 pages) Published September 9, 2020.
The report states «Climate change poses a major risk to the stability of the US, financial system and to its ability to sustain the American economy. Climate change is already impacting or is anticipated to impact nearly every facet of the economy, including infrastructure, agriculture, residential and commercial property, as well as human health and labor productivity.
Over time, if significant action is not taking to check rising global average temperatures, climate change impacts could impair the productivity capacity of the economy and undermine its ability to generate employment, income and opportunity».
The main risks emerging from climate change are natural ones such as extreme weather events, an increase in sea level that can hit U.S. coastal metropolises economically.
In addition, the report mentions the delayed transition from the use of fossil fuels to the development of cleaner forms of energy and underlining that both of these forms of energy «could interact with each other, amplifying shocks and stresses».
The report recommends that regulators require insurers to assess how their underwriting activity and investment portfolios may be impacted by climate-related risks and based on that assessment that they require them to address and disclose these risks.
The answer came from global insurance giant Munich Re where it published a new white paper titled «Reimaging Resilience in a Post Pandemic World», which explores how society might avoid the disastrous consequences associated with climate change risk.
This white paper states that “the Covid-19 pandemic has exhausted the resources of households, governments and business balance sheets, resulting in the economy being more vulnerable than in the past.
In addition, it states that: «the insurance industry has a tremendous opportunity to help close this protection gap. Effective methods include the offering of innovative risk transfer solutions for weather perils and the development of risk transfer products and services that incentivize resilience and risk mitigation».
«If vulnerable regions (like Australia, California, Southeastern Texas etc.) continue to deprioritize long-term strategies, the risk of unexpected and severe global disruption due to extreme weather events and knock-on-effects, from supply chain disruption to food and water shortage and migration pressure».
The proposals in the U.S. CFTC’s report includes:
1. Carbon taxation, with the aim of businesses and markets limiting emissions of gases caused using fossil fuels.
2. It is proposed that banks adopt the concept of ‘environmental risk’ for listed companies on the stock exchange.
3. It is proposed to incorporate mandatory environmental risk as a criterion in the management and evaluation of balance sheets and in asset markets, such as corporate and municipal bond markets.
All these proposals and initiatives are highly constructive, but the curious thing is that this report is made public two months before the American elections, possibly wanting to influence their election result so as to show that the elite of American society is in line with the presidential candidate who considers climate change to be an existential threat (Joe Biden) and not with the presidential candidate who is a denier of climate change (Donald Trump).
