- Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
- In the latest episode they spoke with Sarah Bloom Raskin, a member of the Biden Administration’s Regenerative Crisis Response Committee.
- Raskin says the committee is working to understand what kind of carbon footprint publicly traded companies have.
- See more stories on Insider’s business page.
When we think of combating climate change, our minds tend to turn to green energy like solar or wind power. But the world of finance has a tremendous impact on the environment, and we’ll never be able to steer away from impending climate calamities until big business takes action.
Remarkably, Sarah Bloom Raskin says in the latest episode of “Pitchfork Economics,” financial firms have largely never even considered climate change in their financial plans and projections: “It just hasn’t been incorporated as a particular factor that is producing economic costs,” she said.
Given that experts predict climate change will cost the United States nearly two trillion dollars in GDP per year by the end of this century, this statement might sound absurd. But Raskin knows what she’s talking about: As the former deputy secretary of the US Department of the Treasury and a former governor of the Federal Reserve Board, she has spent her career closely observing the activities of banks, Wall Street firms, and other entities that shove billions of dollars around in any given workweek.
The good news is, big business is finally starting to acknowledge that climate change is happening.
As Germany faces biblical flooding and the United States is wracked from coast to coast with heat waves, droughts, and wildfires, the threat is now too real to ignore.
And now Raskin is a member of the Biden Administration’s Regenerative Crisis Response Committee, which is working to recommend a new suite of monetary and financial regulations to guide the United States to carbon neutrality by 2050. Raskin is tasked with helping to envision regulations that can be employed by the Federal Reserve, the SEC, the FDIC, and Fannie Mae and Freddie Mac, among other financial regulatory institutions, to address climate change.
Raskin is right now considering all of her options for how to create environmentally sound fiscal policy.
“Maybe what we want is to have a better understanding of what kind of carbon footprint a particular publicly traded company has – and what risk that carbon footprint might cause for them,” she said. The solution for that might be to call on the Securities Exchange Commission to require the company to release an environmental disclosure to shareholders, so “investors will then have a better ability to make decisions regarding where their capital goes and where they choose to invest.”
Raskin said “there’s quite a bit of momentum for” requiring environmental impact disclosures. And it’s not an unusual request to make: Publicly traded companies already have to provide hundreds of pages annually documenting potential risks that they face. A new requirement to reveal environmental risks falls well within these pre-existing guidelines.
The committee is also examining the concept of an environmental stress test for financial institutions.
“The stress test was a regulatory innovation used after the  financial crisis to determine whether a regulated institution, particularly a bank, could withstand the shock of a particular magnitude, and what would happen to that bank if that shock was long-lasting,” Raskin explained.
If banks are unable to prove that they’d survive another Great Recession, for instance, they are barred from paying dividends out to shareholders until they can demonstrate that their foundations are more solid.
Raskin says European institutions are working to establish an adverse climate stress test for banks and other such institutions. If London suffered the extraordinary floods or long-term droughts that are plaguing other parts of the world, for example, would their banks be able to continue to serve their clients, or would a bailout be necessary?
Raskin and the rest of the committee is hard at work compiling a list of financial regulations and procedures for President Biden to take under consideration. And the best part is, because the policy would be delivered through existing financial regulatory structures, these financial regulations are unlikely to get held up in a partisan Congressional gridlock.
“I think it can all be done without new legislation,” Raskin said.
Policies like stress tests and disclosures already exist and are well-known to financial workers. And while “they haven’t been used to deal with this particular existential risk that confronts us,” Raskin explained, “they can be and they need to be.”
Now that the climate crisis has been proven, beyond a reasonable doubt, to be real, it’s time for Big Finance, with the help of smart regulators like Raskin to adapt and respond to this new reality.