When it comes to financial regulation, climate advocates may have lost a battle but certainly not the war. Sarah Bloom Raskin’s failed nomination to be the Federal Reserve’s top bank watchdog was a setback for climate and regulatory advocacy groups, which see a bigger role for the Fed in ensuring that banks aren’t exacerbating risks to the planet and the financial system. They saw Raskin taking the central bank farther, and faster, than the current leadership. Does that mean U.S. banks are resting easy now that Raskin has withdrawn? If you’ve been paying attention to what the Fed and banks have been doing on climate (or you follow your MM host on Twitter!) you’ll know the answer is a resounding no. U.S. regulators may be behind other countries in implementing climate-related rules for financial firms and other public companies, but they are already taking clear steps in that direction. And U.S. firms — facing greater risks from wildfires, flooding and other extreme weather, along with new rules aimed at curbing climate change – are trying to get ahead of it, and seeking more guidance from the government. “Nothing has changed,” said Peter Dugas, executive director at Capco, a global consulting firm focused on the financial services industry. “Even though her nomination has been withdrawn, they [the White House] continue to have a whole-of-government strategy around climate.” That is, the Fed’s vice chair for supervision may be the most important bank regulator, but it’s not the only regulator. The Securities and Exchange Commission is set to unveil a highly anticipated proposal this morning that would require public companies to disclose their greenhouse gas emissions and exposure to climate risks. As our colleagues at The Long Game reported , the rule would likely require companies to report emissions from their own operations and energy consumption, according to people who have spoken with SEC Chair Gary Gensler. Some companies could eventually have to report emissions generated from the goods and services within their supply chains. Thousands of companies already voluntarily provide emissions data to CDP, a nonprofit repository of corporate climate reporting. And in the U.S., nearly 32 percent of companies even disclose their supply chain emissions to CDP. The Office of the Comptroller of the Currency issued draft principles in December “designed to support the identification and management of climate-related financial risks” for big banks. And Dugas said he expects that other federal agencies that have lending programs – from the Environmental Protection Agency, to the Small Business Administration, to the Energy and Agriculture departments — will start to modify those programs to take account of climate risks. But back to the Fed. Some critics of Fed Chair Jerome Powell howled over his reappointment, arguing that he had done little to advance climate issues at the Fed. When Raskin encountered resistance over her climate views, some of the same people said her public statements didn’t go much beyond Powell’s. The reality is somewhere in between. In December 2020, the Fed became the first federal agency to join the Network for Greening the Financial System, an international group of central banks and financial regulators developing rules to address climate risks. The following month, it hired the New York Fed’s top bank supervisor to lead its new Supervision Climate Committee focused on climate-related risks to individual financial firms. It also created a Financial Stability Climate Committee, aimed at tracking risks to the broader financial system and the economy. The Fed, as part of its bank supervision program, is also developing climate scenario analyses — similar to stress tests, but without the potential for new capital restrictions. At his confirmation hearing in January, Powell said it’s very likely that the scenarios “will be a key tool going forward” and a top priority for the Fed and for him personally over the next few years. But he said it is not the Fed’s job, nor would it be appropriate for them, to tell banks which legal companies they can or can’t lend to. “It is really to assist us and the financial institutions — who are doing these things themselves, very actively, the larger ones — to understand the risks,” he said of the climate scenarios earlier this month. The last point is key: Banks weren’t especially anxious over Raskin’s nomination (something we’ve also covered here) because many of them are already taking steps to prepare for climate-related risks. Republicans, including Sen. Pat Toomey (R-Pa.), have argued that the banks are capable of assessing and managing the risks themselves, and said the Fed should stick to its primary mission — maintaining stable prices and maximum employment. Fed officials have made clear they see monitoring climate risks as part of their job to oversee banks’ safety and soundness. Could Raskin alone have pushed the Fed and the industry to speed up the transition? Maybe. Regulators are still moving ahead without her. IT’S MONDAY — Welcome back! Get ready, it’s a big week for Fedspeak. Have tips, takes, questions or ideas? Send them our way: kdavidson@politico.com, aweaver@politico.com, or find us on Twitter @katedavidson or @aubreeeweaver.
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