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tv   Discussion on Climate Change the Financial System  CSPAN  December 19, 2020 12:54am-3:08am EST

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federal and state policymakers on addressing climate risk through financial regulation. senators brian schatz and sherrod brown, the heads of the , fdic commodity futures trading commission and rail brainerd are among the speakers at this form organized by the center for american progress. i am the executive vice president for policy at center for american progress and i want to welcome all of you to today's event. before we get started, a quick bit of housekeeping. live captioning is available by clicking on the closed captioning button at the bottom of your screen. we have a tremendous program at. senator brian schatz will offer remarks and then we will move on to a panel discussion. panel, the founder and board chair will speak with a member of the board of
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governors for the federal reserve system. sherrod brown will then offer closing remarks. before we dive in, a few words of introduction. climate change is one of the biggest challenges we face in the coming years. havoc andaked destroyed lives and livelihoods. it is already happening. earlier this year, our west coast was on fire, almost 10 million acres went up in flames, over twice the amount in 2019. firesf the top 20 largest in california's history happened this year. we have witnessed an increase in her connectivity -- in her connectivity. b -- hurricane activity. this damage, the economic damage is staggering. between 1980 and 2019, there were roughly six natural disasters per year where damage
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because exceeded $1 billion. an overall annual economic loss on average of about $45 billion per year. in the last two years of that time, but between 17 and 2019, we averaged 15 natural disasters per year at an annual economic loss well over $150 billion. as the impact of climate change intensifies and natural disasters get worse, the very fabric of our economic security is stretched thin. if temperature rises to four degrees celsius above preindustrial levels over the next 80 years, global economic loss can amount to $23 trillion per year. the economic turmoil now is significant. deal that economic reflects the gravity of the
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climate change crisis we face. currently, hundreds of billions of dollars in our economy are wrapped up in fossil fuel financing and fossil fuel investment. if we are to do carbon eyes our economy, then we need a robust contingency. we need to protect the financial system from the risks of climate change so that the climate crisis does not spark a financial crisis that threatens our economy. when we suffer financial crisis, when we suffer climate driven disasters, the most vulnerable americans are hardest hit. too often, those are disproportionately people of color. these vulnerable communities need institutions to act. they need to be represented when it comes to those making decisions that affect them and all of us. there are too few african-american financial regulars. if we are going to address the
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most difficult regulatory questions related to climate change and if we are going to do in a manner that is best for all americans, then this must change. if there is one critical lesson oftake from our experience the pandemic and economic fallout, let it be that we need to anticipate plans for what may be coming out of and not rely solely on our reactive capacity. this country was not prepared to handle the challenges of covid-19. and with more than 300,000 lives lost, and countless others forever impacted, we have paid a horrible price. we have an immediate opportunity to learn from our mistakes and move forward aggressively to address the looming climate classes -- crisis. with that, i will now handed over to senator schatz. he has been a leader in the area and championed the need to adapt and transform our economic system. it would require the federal reserve to establish climate
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risk -- for the nation's largest financial institutions. time and again, the senator has engaged in this to address much-needed change. it is an honor to have him speak with us today. senator schatz, over to you. senator schatz: hello, everybody. we can all agree that our federal financial regulators have not done enough to quantify and to manage the risks that climate change pose to our financial system. but fortunately, we will soon have allies in the white house and at our regulatory agencies who can push the financial sector to do more to mitigate climate risk. i would like to highlight a few concrete steps that will help to prevent a potential climate driven financial crisis. first, the fed and other banking regulators need to include climate risk as part of their bank supervision, not just financial stability surveillance. an important part of this approach will be stress testing. second, the fed should and a great climate risk into its
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monetary policy, as well as its balance sheet management. word comes the securities and exchange commission needs disclosure for publicly traded companies and the biden administration needs to stop or reverse agency rules that prevent financial firms from considering climate change in their business decisions. agencies do these not need new statutory powers to take these steps and in fact, must under current statute. they can proceed immediately. at this moment, regulators have the authority and responsibility to manage risks to the financial system and that includes climate risks, because in the financial risk., risk is when it comes to climate, the cost of inaction is higher than the cost of action. we can't afford to wait longer. if we want to have a strong economy in 10 or 30 years,
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financial regulators need to start implementing change like these now. i want to thank you for your leadership and partnership in this space and let's get to work. thanks. >> thank you, senator. thank you for your remarks come of leadership in this area, and work to reduce effects of climate change. add the role in clean energy's initiative has made the state a model for energy growth and created new clean economy jobs. the question today is how can the financial system be an agent of progress in climate change matters? panels a distinguished of sitting regulators who have been leading in this quest. i will keep introductions brief. commissioner ross who has been confirmed by the senate commissioner7 as
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for the trading commission. he has extensive experience in agricultural markets and has spearheaded the first official report onnsored climate change matters and financial regulation in the u.s. lees joined by commissioner , who was sworn into the fcc on july last year and brings two decades of experience as a loss counsel and service as to the commissioner. memberel includes board marty bloomberg, a member of the board of directors and previously served as the chairman. before that, he served as senior counsel to the fondly remembered late senator sardines -- senator senator.
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will serve as chief of staff and counselor to the government. following the same order, let me turnover teach panelist for three to five minutes opening remarks. commissioner? >> thanks, i appreciate the introduction and thank you for hosting this great event. it is timely and extremely important and we have a great group. i want to thank my fellow regulators here. it is great to be on a panel with them and i'm looking forward to learning from them and being a part. you mentioned in your opening remarks a report that i lead titled managing risk in the u.s. financial system. i was -- i would encourage it on theto see
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website. i spent a number of years at theing securities law new jersey attorney general's office. i spent a number of years in the senate serving as counselor on -- agricultural policy. since i took over as commissioner i started thinking climate change because i spent my previous time in the senate thinking about climate change in the context of agriculture and forestry and how climate change over the course of many years is having an communities,al urban cores, and disproportionately affecting low to moderate income families and as i started to take my role as a financial regulator, reading a fair amount of literature that has been done overseas on financial rated climate risk, i thought what can i do within my capacity to elevate the issue and do something from a u.s.
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perspective. i convened an advisory committee, a pretty traditional tool for regulators across the u.s. government and i was able to convene a pretty diverse coalition of economic stakeholders from banks and investors to energy companies, agricultural companies, environmental groups, public interest groups, and convened group with the task of putting together a report that would provide policy recommendations to the government regarding climate related financial market risk. ere two priorities i had w building a coalition to get through the gridlock of climate policy, we need to have as many stakeholders involved articulating their opinions, recognizing climate change is real and it is going to have adverse effects on our economy and our financial markets. second, to find consensus. task given thelt
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diverse viewpoints on climate risk, but with the group, it was --ton to get consensus's important to get consensus so we could have a strong document and third, a comprehensive report. has been worked on at different levels of government and we will hear about this this morning, but to have a comprehensive document that would cover the scope of financial market and regulatory policy. i think we learned many lessons, as recently the march-april period after covid-19 hit our shores. the 2008 financial crisis, our financial markets are interconnected. people on one level of a market, it is going to have an effect downstream and upstream across financial markets. in order to look at this in a way that would deliver positive results, i thought it was important for the committee to
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look at financial markets exhaustively. 53 policy recommendations covering financial regulators, a lot of positive ideas i think we can all learn from and hopefully, something we can use going forward as a starting point for smart policy to mitigate climate risk and address the challenges we are facing in the decades to come. andres great, commissioner early? everyone,ou, especially greg for putting this event together and the important work you are all doing in connection with climate risk. it is a pleasure to sit on this panel and i look forward to the discussion on the issue. events like this are important to share thoughts and ideas. the impacts of climate risk will costly to the
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financial system. to understand why there is overlap and gaps and where we can work together and where we can learn from one another when it comes than a and uncertainty of the risks our financial system faces. we can't afford to see the silo ng that led to some of the problems we know we face during the 2008 financial crisis. for climate change risk, we cannot afford to have blinders on that prevent us from seeing, accepting, and coordinating around the bigger picture. part of that is understanding the financial system is a critical component of the real economy. ist of the bigger picture how it will bring jobs to americans, understanding how the impacts of the climate change are landing across the broader
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economy including what we know about how those impacts are disproportionally felt in communities of color. we each have our jurisdictions, but are working toward the same broader goal of supporting a sustainable economy. an approach for solutions relies impacts of climate change and that information starts with disclosure. sec, disclosure is one of the main tools used. investors need information to be able to price risk and allocate capital efficiently and more and more, they are driving capital toward sustainable aleutians -- solutions. take shape, icy expect we will see more of a drive toward sustainable solutions. if that occurs, there will be a greater premium on information and careful collaboration among
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financial regulators and other international regulators to ensure the shift can occur. that requires cooperation with regulators and all of that to say i'm really glad to be here with all of you today and i look forward to hearing from you and working with you on these issues. : director bloomberg, please go ahead. i thank you very much and would like to thank the center for american progress for inviting me to participate in today's program. like to join the others in addressing the impact of climate change on financial stability. they've all made significant contributions already. historically, which have viewed financial crises as systemic from developments in the economy
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or financial system. , this wasted states true of the banking crisis in the 1930's, the thrift crisis of the 1980's, and the global financial crisis of 2008. we have not generally considered systemsexogenous to the as potential causes of financial crises. the dodd frank act requires the financial stability council to issue an annual report. it must identify potential emerging threats to the financial stability of the united states. it has now issued 10 annual reports for 2011 to 2020. report, none0 identified a pandemic is a potential emerging threat.
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we are now learning the profound onact a pandemic and have the economy and this year, it identified covid-19 is the biggest external shock to hit the postwar u.s. economy. reports hasannual identified climate change as an emerging threat to u.s. financial stability. international organizations, however, have been raising the alarm for quite some time. the financial stability board has stated climate related risks have a profound impact on the stability of the global financial system and in its november 2020 report, the agency warned climate risk could amplify credit and counterparty
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risks and challenge financial risk management in ways that are hard to predict. regulators have a compelling obligation to engage with climate change as a financial stability threat. our comments today will likely reflects significant agreement on some of the key issues to address. we need a better understanding of how the physical and transitional risks of climate change become manifest to threats to financial stability, we need better data to understand the exposures to those risks and for the development of methodologies to analyze them, but even as these data are developed, regulators tod to provide direction now financial institutions to develop plans to identify,
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monitor, and manage the risks posed by climate change. larger institutions, these plans should be comprehensive and require the measurement and disclosure of climate change risks including through the use of stress tests. further, climate change is a global problem. among the week, financial regulatory agencies participating in today's had become a one member of the international network of central banks and supervisors for creating a financial system. that is the department of financial services of new york only, which is also the one to issue guidance on climate change to its regulative entities. the federal reserve earlier this joinednounced it has
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the agency. going forward, all the federal agencies, the banking agencies, and market regulators will have to engage proactively with the financial risks of climate change, will need to act individually, collaboratively, including with our state counterparts and on a governmentwide basis through the agency. all of these agencies should become members of the network and actively engage with our international counterparts. international leadership by the united states will be essential if we are to make global progress on climate change, including its financial stability risks. the fact is, we are behind the curve and we have a lot of ground to make up for.
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thank you. areas: a lot to do in this . thank you, marti. superintendent? >> thank you to the co-panelists for the insightful remarks. the senator laid it out very well and also to acknowledge senator brown and john podesta, the achievements which are toodied by the nomination join the new administration. congratulations to her and to you. i'm coming to you live from the new york state capital in albany where i am part of a team for the governor. it was, of course, and emotional moment on monday when the first vaccine in the united states was administered in new york by a health care professional to a health care professional, both
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black women. symbolizing, i think, the disparity impact this pandemic has had on communities of color and i am happy to hear others comment on those issues to which we also have to do much work with respect to these disparities. has showne pandemic us and everyone how connected we all really are and in that sense, it is a to the impact of tomate change -- akin climate change, with impact -- which impacts everyone on earth. as has been expressed, we have our own obligations with respect to oversight of our industries and institutions on the financial risks of climate change and so when i came into office last year, we were focused on a number of areas where we needed to make progress, especially in view of in the the vacuums
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administration federally at the time but it was very clear ofmate change was an area impact. holding $7 trillion in assets, we felt we had an opportunity but also an obligation and stepping into the breach was not easy, i can tell you that. to go first is hard. luckily, european regulators had already gone, we met with them, they were generous with their experiences and advice and they gave us the confidence to move forward. in a certain respect, it was simple. of oursee safety institutions requires working with them on financial risks. for not onlyks banking institutions, but insurance companies that states regulate. we are now working in
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partnership with both sides of the industry that we regulate. we have set out our regulatory expectations consistent with the tasks toward financial disclosure and the path set forth by the european regulators and the response has been terrific. have takenutions steps, but it has to be a level playing field and all need to act. otherwise, we will have tremendous gaps. i cannot tell you how excited i am to move forward with the new administration and federal regulators to ensure our work is aligned and we have the best from all and i look forward to this dialogue. thank you. andres: thank you, linda for your words and work in this area. remarks, i framing would like to dive into the discussion with questions for panelists but please feel free to respond to other points made by other panelists.
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behnam, you formed a climate committee at the cfap, we are interested in learning more. can you talk about the process of developing the report? why did you want to push for a consensus document and how was organizations get and public interest groups to sign on? comm'r behnam: it was difficult, and linda alluded to this, a difficult environment where you have a lot of headwinds. it was not easy, but i laid out three clear things for the members. in the end, we had 34 members, a part of the subcommittee, a big committee. like i said in my opening
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remarks, a diverse coalition representing different elements of the economy and the real economy at its core. i laid out a pretty clear vision of what i wanted to do. addressing these risks is critical. you make observations throughout -- even in the past five or 10 orrs about more frequent extreme weather events. a lot of institutions are doing internal work in managing climate risk, but it is important, as was mentioned earlier, climate change is not an issue that can be handled by the private sector or public sector alone. it is a problem that we have to work together and leverage each other's tools and authorities and powers to address the issue in a uniform manner so i laid out a pretty clear vision. i had a very clear targets of what i wanted to accomplish. i was flexible in the sense that i gave the members a very clear timeline of what i wanted to accomplish and when i wanted to
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accomplish it and frame to issues going across the board in terms of financial regulation and how we needed to aggress -- address everything from stress testing to data to international coordination. we started the effort in earnest in november of 2019, 6 months after i held the public meeting at the cfap and did the work to get the work together. that, the group started working together in person and telephonically and we dealt with covid in march of this year which you can imagine was a huge challenge. folks dealing with issues at home and their personal and professional life and after several conversations, it was clear the group wanted to move forward and get this effort done, knowing how important it was. we pushed forward, i focused on the issues at hand on climate andge risks we are facing gave the group a very clear vision and direction that we
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wanted to accomplish but with enough flexibility where they know they could work together and not get too much distraction from the outside from either politics or outside input. they just worked together within with aup and came up really remarkable document, which is the first of its kind and as i said before, can hopefully be used as a benchmark for policy going forward. lee -- commissioner go ahead. the mission is to protect and orderly markets and facilitate capital formation. risk,t comes to climate the sec's core disclosure framework has received the most attention. i want to ask you about one component. could you talk about the need
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for enhanced disclosure from financial institutions that are financing carbon reducing initiatives and levers the sec has at their disposal to execute its mission. comm'r lee: sure, let me start with this. standardized framework is a crucial step for us to take at the sec. the sec hasn't spoken to this issue since 2010 and then it was in the form of commissioner guidance and a lot of has changed since 2010, in terms of the urgency of the issue. there has been an uptick in disclosures that is largely voluntary and that poses a number of challenges for investors. it is clear there is a need for regulatory involvement to help work through the uncertainty and
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establish a uniform standardize approached. toention that before turning the specific question of financial institution disclosure because i don't want to give it short. the importance of standardized framework can't be overs tated. that said, it is also important to focus on financial institutions and their financing carbon producing activities. of both risk and opportunity at financial institutions needs to be better disclosed and understood. their exposure and contributions are associated with individual companies. he require a unique and different approach. we need to be able to gauge or finance emissions using parameters like those developed by the partnership.
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i've been encouraged to see and one major u.s. bank has joined its international counterparts in voluntary committing to go through emissions disclosures. inneed to make headway financial institution disclosures because of the magnifying effects of these institutions that affect the problems and solutions. where theabout areas sec intersects with issues relating to climate change risks in addition to public company disclosures and emissions, yes, there are additional areas. investment advisors. consider whether they need specific procedures in place to ensure they are acting consistently with their own representation about how they approach climate and other esg investments. these could include how they will implement climate
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preferences with respect to asset selection, exercise of shareholder voting rights, this is a massive and growing market. investors who use these financial advisors and buy their products need transparency on climate and esg matters. credit rating agencies, the sec agencies, nationally recognized rating organizations. many of these agencies incorporate climate and esg factors into their ratings so we need to make sure there is adequate transparency about how those are weighed and we need to make sure there is consistency in the application of those models. there are numerous areas where the sec's mandate intersects with issues related to climate change. andres: that is a bold agenda for the sec.
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, and if i could ask folks to keep muted for a minute. the fdic is one of the thelators responsible for soundness of the banking system and charged with protecting depositors with deposit insurance fund. how does climate change intersect with your agency's mission and are there regulatory and supervisory tools that over time could be used to mitigate climate related risks? there is obviously complexity in risk and so balancing the need to act decisively with the need to improve our understanding of the risk itself? you had a number of questions folded in there. look, first of all. is fundamentally about
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public confidence in the banking system and maintaining the ouric's confidence through supervision of the system. climate change as we've discussed today presents a fundamental threat to the long-term stability of the system. so engaging with climate change an understanding of the risks it poses and incorporating it into the fdic's supervisory program as well as into our deposit insurance system is really a key challenge going forward and providing guidance now to our supervise institutions in regard to it. raise a key
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question, because in this case, i think we really need to chew gum and walk at the same time. we've got an enormous amount to learn in terms of understanding how climate change impacts financial risk. all of us are in agreement on the need for improved data, enhanced ability to evaluate for the industry, as well as ourselves, to gain a greater appreciation. at the same time, we don't want to put ourselves in the spot of delaying actually moving to address these risks, and i think the supervisors and the industry together need to move forward, frankly, on both fronts. we need to enhance our understanding in regard to the risks, but i also think we as
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supervisors need to provide to our regulated institutions and the institutions need to begin to andge now with those risks, i do think governance is a key issue here and we really do need to expect, particularly from the large institutions, the development of detailed plans to lay out the risks climate change poses to them and that will give the agency a tool to use in evaluating the risks to the institution. there is a big agenda, a complicated one, and what is so striking is we are really just beginning here. andu.s. is behind the curve we really do have a lot of work to do. andres: indeed we do. hasrintendent, new york taken nation leading actions in this area.
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what actions do you think federal regulators should be taken to make up for the lack of action over the past four years and address the challenges your regulatory entities have brought to you? >> thank you. i think a number of those have been articulated today. i know it is true that we are behind. andre behind on the issues we are behind the europeans but the good news is, we can learn from the experience of the bank and england of bank -- and bank of france as to what their road was because even when they initiated dialogue on this, they took a period of time to study the issues before engaging with industry and laying out the steps they would take. i think it is critically important. as regulators, we are part of government and it is important not to allow ourselves to get bogged down in bureaucracy and
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ordinary delay of matters because you do have to balance that you need to act to manage the risk and get it right. so i think if we engage with industries, we talk to each other -- commissioner lee's comments are important because the data that we need is from many of the companies which may be public companies about what ng, and theperienci financial industry needs that data so at the sec, they enfold -- engender disclosure, get companies that they need and help the regulators. there are other matters such as the department of labor, the restriction imposed on supplying esg, private pension funds, that was not helpful.
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that is a message in the wrong direction. i trust that will be reversed. the tone is importantly at the top. we tell industries what is important, and they listen, so the combined impact of all the regulators, federal and state to our industries, combined with the foreign regulators, because we had internationally significant institutions that many of us oversee and we want to be aligned across the board and we can leverage out and have significantly more impact than we would have if any of us was working alone or not in combination. that is why i am really looking forward to a new year focused on climate change. linda, i want to stay with you for the next question. new york has taken bold actions this year. you tell us about your plans going forward to the next year? we are working on detailed -- supt. lacewell: we are working
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on detailed guidance and we said you have to focus what is the risk, how do you measure it, how do you mitigate it? and think that through as part of your risk analysis, your business strategy, and so on and not to forget some of the assets you may be investigated -- invested in could become stranded and orphaned and what will the impact be, as well as respect to your counterparty. now to follow-up with detailed guidance about what that means and how they should apply this and how we are going to move forward. we do already have from the naic theures with respect to insurance agency and we look forward to developing that on the financial side as well, but if one were to look to the bank of england, one would naturally see us follow that path. we may have the ability to move a little faster because of our agility and we are a state entity and we have a lot of
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ce from a government system. we don't want to get ahead of the regulators, and i'm looking forward to being impactful. we are doing a number of learning sessions and have had hundreds of institutions sign up for each of these. i think there is a real appetite and thirst for understanding and data is really going to be key. gears toet's shift systemic risk. you've noted you think of climate change as a systemic threat to the financial system and there is a growing consensus on foreign and domestic regulators that believe the same. what about the nature of climate risk makes it systemic and how important is it for regulators to coordinate with one another domestically and internationally to mitigate ther -- this risk? >> we are seeing growing
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recognition of systemic risk posed by climate change. tion comes from a number of places. financial disclosures, the advisory committee to name a few. think primer for how to about systemic risk comes directly from that report which essentially lays out systemic risk is broadly characterized by three things. first, shock amplification or the notion that a given shock to the financial system could be magnified by certain forces and propagate widely. second, propagation causes impairment to all our major parts of the financial system causes spillover effects to the real economy. ability tok has the
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trigger that chain of events. importantly, there is evidence climate risk is not well understood and underpriced. particularly with respect to long dated access, utilities, securities, municipal bonds among many others. we all know that underpricing can leave to disrupted pricing. what can trigger that? unprecedented climate events, important changes in environmental laws and policies, or both. we may see events that trigger significant disrupted pricing rather than steady and manageable shift toward stability we would like to see. climate risk is unique in terms of its scope and complexity. , social, environmental economic, and geopolitical dynamics that work and the in ating risk interacts
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manner that can make them difficult to understand and predict. all of that combines to create the risk and shock and that makes regulatory cooperation domestic and internationally imperative. have allowed regulators to come together and think about how to address systemic risk internationally. we have the committee on assessment of vulnerabilities, mechanisms for international collaboration, which can look thank to the -- look to the new york department of financial services. andks to the superintendent her work, we look forward to the detailed guidance she was talking about but this is a global challenge we are facing and the need for a collaborative approach has never been more clear. one of the many
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excellent contributions of the report was highlighting the need to focus on sub systemic shocks, as well. regulators analyze climate systemic risk lens, but policymakers should also care about smaller and perhaps more immediate climate related shocks that disrupt regional economies. can you talk about that perspective? comm'r behnam: it is interesting, how the markets reacted to covid-19 in the march and april period. when that happened, this panel had to deal with that acutely in managing the changes of the volatility of the markets in a short period of time. it made me think of a number of conversations i've had in years how i've been thinking about this for a number of
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years, having conversations with academics or economists were market experts and talking at an initial level and at a very high level, what are their thoughts on the relationship between financial market risk and climate change, and frequently i would get, oh, marginal at best. it is not necessarily clear that will happen and really, and unconvincing response is the best way to put it. post-covid, it would be interesting to ask the same group or a larger group. if you went 5, 10, 15 years back, if you ask these individuals what do you think the relationship is between a health pandemic and international risk, most would say it is marginal and i think we've learned above all else how financial markets and the economy really underpin onrything that goes throughout our country and any shock, anything we face, is
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going to have a direct impact on our economy and by proxy financial markets. to your question directly, we can think about -- and commissioner lee spoke about this perfectly, we can talk about a lot of the comments and statements that were made in the report, one of which is direct in saying that climate change to the major risk stability of the u.s. financial system and its ability to support the economy, but let's think about the subsystem it shock and how climate change is, in many respects, regional and we are seeing that in the past few years. whether it is flooding in the midwest and the agricultural heartland, hurricanes in the gulf coast, you have these shocks to those regional economies and it can be to lenders, borrowers, asset valuers. in theill experience future, compounding events, compounding climate events in
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and howerent regions are those sub systemic shocks going to potentially raise to a larger systemic shock across the financial system? i thought that was a brilliant way for the issue to be framed by the subcommittee, because in many respects, we have to be very cautious about what climate change is today and how it is going to affect financial stability and systemic risk, but peel kill back a layers -- back a layer and think about how climate change affects different geographies in our country and at hypotheticals and scenarios as we have seen in the past year, whether it is a wet season in the midwest compounded with a wildfire season out west, what does that mean for the larger regional economies and how are they connected? i mentioned this at the onset, a i did ason comprehensive report is because of the interconnectedness of
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markets, state, federal, derivatives, state and provincial regulators, everything is connected and we have to be thinking about it that way to address this issue comprehensively and effectively. term that wasting brought out by the report and one with lasting effect because it is correlated to climate change and how it will affect our economy and our financial markets. andres: we seem to be learning the hard way we need to be proactive. that scenario building exercise really does help. you were a voting member of the financial stability oversight council when you served as chairman of the fdic. given the financial stability implication of climate change, do you think -- what is the role in this issue and could the office of financial research be
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-- from a data perspective to help? mute.eve you are on >> in many ways, it is made for this kind of issue, because it really does stretch across the financial system and brings together all of the federal financial regulators and it is worth noting the state regulator s are members. take insurance commissioners, security commissioners are also members so it has around the table all interested parties that will need to be engaged. the thing to keep in mind about the fsoc, and anybody who served on it is keenly aware of this, it is a little like herding cats.
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the secretary doesn't and probably shouldn't have the authority to order around these independent financial regulators. you really need to bring people together in a collaborative way and for that to be successful, it really depends on the individuals who are leading those agencies to have a commitment and engagement on this issue, and to understand that success ultimately will depend on the ability of the agencies to work together and i think if you have that, which i would be hopeful for, frankly, going forward, i think the fsoc is a critical contribution to make here. the office of financial research -- as we have discussed -- better data and research is
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central to this effort. in some ways, i think the potential of the ofr has been farr realized thus and with greater attention and investment, it can play an increased role and all of these agencies are going to be investing resources in research and data for their particular parts of the financial system, and collaborating with ofr, presuming it is looking at the system across the board would have a lot of potential, so fsoc is a great tool. the question is, can we utilize it effectively? marty, given the nature of our globally interconnected financial system, how important is it for multilateral bodies like the committee on banking
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supervision to address this risk in a coordinated fashion? dir. gruenberg: it is obviously central. all of us would agree on that, and the fact -- as you may know, the boswell committee on banking supervision has a task force on climate risk. a person from the new york fed u.s.chairing it, but the has not thus far played the international leadership role that is really needed and i do think the rest of the world will be receptive to and in fact is looking for. in all of these forums, whether it is the boswell committee on banking supervision, the securities area, financial stability board, which from an international perspective, spans the range of authorities, really
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critical for the u.s. to step up and play a leadership role. you really have to build up each of our agencies needs to engage, we need to work with one another. we have to collaborate across the u.s. domestic agencies and then engage actively internationally and i think that will be a focus. i really do and there is a tremendous opportunity. we are not going to get the global impact we need without u.s. leadership. andres: let's stay with this international theme for a second and i'll ask a question for commissioners lee and commissioner behnam, the following. the former bank of toland governor has referred the tragedy of the horizon, the
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idea that the worst effect of climate change falls outside the traditional decision-making .indow for policymakers what climate related lessons should regulators going from the current pandemic, as linda was mentioning, and can those lessons help overcome this hurdle? start?lee: should i let me start. will have rostin sound points to add, but the for some time -- the pandemic and climate change are both global problems and they don't respect national boundaries so they both require us to work together to find solutions. i think the pandemic has driven at home and climate change is no different.
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the effects,hed disproportionately on -- these large-scale problems have that effect and take steps in recognition and the pandemic, something governments new post potentially and thathic risk brings home that we cannot of ad to wait in the face known risk that contains elements of uncertainty and climate risk falls into that category. it is a known risk of uncertain type and magnitude. climatebegun to address -- if we had begun to address climate change 20 years ago, we could have afforded to take an incremental approach that we have to act quickly, just as we had to act quickly in a reaction to the pandemic. we need to act proactively with
1:52 am climate we know it is real, coming. the sec has a role plate -- key role to play in getting information into the system needed for investors and regulators in making decisions on how to disclose capital. comm'r behnam: that was very well said. there's not much to add, but i would say to use one specific toesle, and i will dip my into commissioner lee's space, disclosure is a huge part of this exercise and if not the most important. more information, better information, better allocation of capital, quicker solution to the problem. the debate about disclosures largely but not entirely falls on the current standards at the i look this is the way
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at your question and how we need to rethink climate risk and and what we've learned from the health pandemic. we have existing structures in place, existing rules and laws in place. we have to rethink how we apply those laws and rules to climate change and climate risk. it is going to take courage, a different way of thinking, collaboration, and collecting data and analyzing in a different way. i think that in many respects is where governor carney was going but i think this is a positive thing we can glean from and something we can look forward to and we don't have to reinvent the wheel. we can learn from past experiences, whether the financial crisis of 2008 or the pandemic of 2020, and we have to use the existing infrastructure in many respects and just weave in climate risk and climate change and rethink how we adapt to this global problem and start to react to it in a way we can mitigate the risks and
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effectively manage them over time. thank you, and talking about data and learning, earlier the first, they held global knowledge exchange series superintendent, can you tell us more about this knowledge series and what were the key takeaways from that event? supt. lacewell: thank you so much. it was important to us that we do as much as possible to help our institutions to confront this issue. in part, the range of institutions that we regulate can be anything from a globally significant publicly traded insurance company to a little upstate auto insurance company or money transmitters.
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it is really across the board, and there are some who are leaders in the financial industry already, so the idea is going to dfs tell you from on high, let me inform you, but rather to bring the actors and industry together, and those who have taken steps to share their experiences and those who wanted to act but didn't have the same sophistication or understanding would be a multiple learn from them -- with them together because it is a responsibility i mentioned, we had tremendous turnout the first couple of these, and i think people really appreciated the opportunity to hear, because knowledge is power and new things are scary. we are taking a proportionate approach with respect to our institutions. we are not going to expect the same -- smaller entity from one
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with a giant proof -- footprint. one thing that comes out again is the need for data, and the data they need is from utility companies, car manufacturers, fossil fuel producers, and act as if that data is critical -- access to that data is critical. in the u k and france, industries are struggling with the need for data and also the nomenclature. what is the taxonomy here that is getting attention and focus in europe? really, a welcoming environment that industry wants to tackle this and wants to move forward and they need our help. if you think about an insurance company, they are dealing with it on both sides of the balance sheet. they cover the cost of extreme weather and what are they investing in and is that any hedge or mitigation?
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is it carbon management or renewables and so on. also, they were very much looking forward to the federal participation and that is a point to make a big difference as we move forward. indeed. so many insights and i think we can all agree we have meaningful and pressing agenda moving forward. i would like to provide the opportunity for each of the panelists to say a few concluding remarks or to make any last thoughts on this issue, so let's go ahead. maybe -- i don't know, commissioner early? -- lee? would you like to give some thoughts? comm'r lee: i'll be brief. i take heart from this discussion today. i've been filled with optimism over the last few weeks and i'm
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d by the leadership from these panelists today. i think the message has been quite clear. it is a tough problem. it can't be solved from the top down. we need industry's help, everybody's help, but what we see is the will to get it done and that leaves me with a lot of optimism moving forward. wonderful. marty, would you be interested in saying a few things? dir. gruenberg: i'm from new york, so i never miss an opportunity to put in my two cents. let me thank the center for american progress for convening this program. it is the first of its kind i've seen where you've brought together a number of the federal and financial regulators to talk about the subject.
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i think you deserve a lot of credit and it has been a pleasure to be on this panel with my colleagues. and allison pretty well. it is the first time i've met the superintendent so i look forward to future engagement. it has been a privilege to participate in this and underscore a point i think has been raised by others, that we need to keep in mind as we undertake this work. attentive to potential unintended consequences, particularly for low and moderate income communities and communities of color. there may be opportunities here for investment in those communities that can benefit -- benefit from them, but there can be unintended consequences and i think that is something we need to be alert and attentive to as we proceed here, but this has been a terrific program and i appreciate the opportunity to
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take part in it, so thank you. andres: mart andres: andres:if i may be so bold as to plug, we just came out with a report on the community reinvestment act and the way that we can use the current act climate related matters into consideration and to really fight not only for their cause, but also against environmental racism, which has been a real problem. as we know, communities of color have been disproportionately impacted by climate change. the situation does not look good. on top of that, we have the covid crisis, which has been so unequal and its impact for communities of color. that's an issue that we hold near and dear to our heart.
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i believe we have posted a link to that report. we need to make sure that the transition to a world with less carbon is a just and fair transition for everybody involved. we have to take care of those folks who have been historically harmed by these and other structural problems. i will get off my stand and pass superintendent? supt. lacewell: your comments are very timely. and the insurance setting as well, climate change has a disparate effect on the poor and communities of color. of certainly decades historical redlining and other discrimination have resulted in being inommunities areas unduly susceptible to flooding and other types of weather related problems.
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we have got to design systems that take account, not to mention the extreme heat that , the from climate change health impacts. with respect to cra, you're exactly right. new york has its own cra act. we are closely studying whether we can get credit under the cra form actions that mitigate climate change in relevant communities. i do think environmental justice and social justice -- the one advantage we have is that we are at the beginning of looking at this problem. if we can design into that at the beginning consideration, the unintended consequences, yes, then i think in part the delay is perhaps not as bad as it may have been. i very much look forward to working with all of the
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panelists. it was a pleasure and honor to be with each of you. thanks. thanks for the invitation and the convening, which was a great discussion. i would just -- three takeaways. i am going to reference the report again. harmonization was a key take away from the report. there was many, but i just want to highlight three. this is an issue we have talked about for the past hour but this is a global issue. i think the report and all the other statements that been made today and the action that we are starting to see build over the past few weeks and months, most recently, the fed's decision to is sending a positive signal to the international community that the u.s. is here and we want to work with them.
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i think that is a huge sign for the positive outlook in 2021 and beyond. environmental justice was a huge part of the report. there were 53 recommendations in the report, but i can positively and very sort of joyfully say that environmental justice actually had 53 recommendations of its own. the committee was very determined and clear that there have been disproportion impacts on low to moderate impact -- low to moderate income homes and rural communities. any policies that we take going forward from any regulator needs to think about those unintended consequences and how we can address those issues going forward. very positive takeaways, something i think we all care about deeply. the last thing i will say is, you know, the report is 200 pages. it is a risk document that identifies everything from better disclosures to stress testing and taxonomy and data and best practices of governance.
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in many respects, it is also an opportunities document. i think we can all look very positively at what the climate crisis is dealing us and how we need to deal with that challenge, but also the opportunities on the backend, most specifically from an economic perspective. as we real about -- rebuild our economy and think about the future is going to hold and hear more commitments of net zero economy from different companies, individuals, and governments, there are a lot of opportunities to rebuild our economy that support economic activity, support labor. i think there is a positive spin and opportunity that we can all sort of embrace and the climate crisis as we sort of knowledge -- manage the challenges in the years to come, but also thinking about the decades ahead. how we can grab the opportunities and look forward to a lot of positive things. andres: absolutely. thank you all for your interesting conversation and
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your forward-looking leadership in this area. now, after this panel, we turn to the keynote remarks by governor leo brainard. asernor brainard took office director in 2014. prior to her appointment to the board, she served as undersecretary of the department of the treasury and counselor to the treasury of -- to the secretary of the treasury. among other achievements, dr. brainard served as deputy national economic advisor and deputy assistant to president clinton. after her remarks, john podesta will moderate a q end date with governor brainard. john podesta is the founder and member of the board of directors for the center for american progress, served as counselor to president obama, where he was
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responsible for coordinating the administration's climate policies and initiatives. cochair ofs president obama's transition term and previously served as white house chief of staff to president clinton. governor brainard, thank you for your distinguished service and the floor is yours for your keynote address. gov brainard.: thank you for that incredibly timed introduction. i want to thank the center for american progress. i am very appreciative of the andrtunity to join andres john podesta for a discussion of climate change and the u.s. financial system. let me start by noting that these are my own views and do not necessarily reflect the federal reserve. climate change is one of the major challenges of our time. climate change and the transition to a low carbon economy have important implications for the financial system. the financial system can be a
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powerful enabler to help the private sector manage climate-related risk and invest in the transition. it is vitally important to strengthen the u.s. financial system to meet the challenge of climate change. i am going to briefly check -- touch on the ways climate change matters for the financial system, the implication for financial stability, the work of measuring, modeling, and managing climate risk in the banking system, and the important agenda that lies ahead. extreme weather events related to climate change, such as droughts, wildfires, hurricanes and heat waves, are clearly on the rise. climate-related events are already adversely affecting the lives of many americans and we are seeing elevated financial losses associated with an increased frequency and intensity of extreme weather events. average annual insured weather-related catastrophe losses have increased notably over the past decade. because of those increases, insurers are incorporating the impact of climate change into their underwriting and
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investment decisions. climate change is also reducing coverage. some insurers have a discontinued policies in fire prone areas, which in turn changes the cost of homeownership ownership and the risk profiles of previously underwritten mortgages in those areas. similarly, mortgages in coastal areas are vulnerable to hurricanes and sea level rise. we have seen mortgages issued for coastal homes on aggregate is seating 60 billion per year -- exceeding 60 billion per year in recent years. hurricanes by particularly in areas not typically affected by natural disasters 10 to subsequently be sure ties -- subsequently -- more of their loans. could face increased hardships. many policies exclude flooding. there are also promising opportunities.
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-- opportunities for private sector investments in low carbon infrastructure, innovation, and transportation. the financial system can provide useful signals to help the private sector manage climate risk and facilitate a smooth transition. it is increasingly clear that climate change could pose important risks to financial stability. that is true for both physical and transition risk. a lack of clarity about your exposures to specific climate risk for physical and financial assets coupled with uncertainty about the size and timing of these risks creates vulnerabilities to abrupt repricing events. a shift in the perceived frequency or severity of climate-related events could rapidly change risk perceptions and lead to rapid repricing of assets. changes in investor expectations about future climate policy similarly could lead to rapid
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and unexpected price changes that would ripple through the financial system. assessing climate risk affects is complex, because the predicted path of climate change is nonlinear and has likely tipping points beyond which changes in climate conditions could occur rapidly and climate forecasts based on historical data are no longer relevant. this could reduce the accuracy of risk models used by investors, risk managers, asset managers, financial infrastructures and leveraged financial institutions. so we need to know more. accounting standards and disclosure frameworks for climate risk are still in the early stages of development and investors do not have enough transparency around the range of climate related exposures facing financial firms and nonfinancial short-term investors may be inclined to fully price in long-term climate affects. some studies suggest even
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well-informed investors may underestimate the likelihood of large shocks related to climate. combined with the uncertainty and timing and magnitude of climate change, this mispricing could lead to financial volatility went conditions change. that puts a high premium on developing consistent, comparable, and actionable disclosures for investors to understand exposures to climate risk and to accurately price that risk. there is strong demand from the private sector and investors for greater transparency around those climate-related risks to better inform decision-making. the private sector led task force on climate related atancial disclosures the fsb, which i participate in, provides a consistent global framework. as of october this year, there were nearly 1500 organizations with a combined market cap of nearly $13 trillion that
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expressed their support for the tcfb framework. we are improving our understanding of climate risk and their impacts on financial stability through staff research and engagement with other central banks. on topics like climate scenario analysis. this is one useful approach to assessing the effect of climate related risk. in terms of how the financial system is exposed and how it may respond to climate related risk. identifiesa analysis climate related tropical and risk factors and formula its appropriate stresses of those risk factors under different scenarios and measures their effect on individual firms and the financial system as a whole. in part because of the different nature of climate-related risks relative to financial and economic downturns and the
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significantly longer planning of climatehis kind scenario analysis would be distinct from established regulatory stress tests at banks which are used to assess capital adequacy over a short planning horizon. from a micro credential does prudential perspective, supervisors are responsible for ensuring that supervised institutions are resilient to all material risks, include those associated with climate change. the economic and financial market consequences of climate change and the accompanying transition will have direct implications for big -- bank balance sheets, strategies and operations, and could increase credit market liquidity and operational risk at banks. climate-related development may affect the credit worthiness of corporate house -- corporate, household, and government borrowers. those risks may reduce a borrower's repayment capacity.
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similarly, climate risk could impact the level and volatility of asset prices, affecting the value of banks' portfolios. severe weather events could disrupt a bank's data centers or operations and impede its ability to provide financial services to customers. although the transition -- transmission channel through which climate risk impacts banks are apparent, quantification of the risks is still challenging. to date, measurement efforts have been hampered by data gaps and methodological hurdles, some unique to climate change. assessment of the potential impact of climate change on a big may require -- bank may require precise data on the geolocation's of a counterparty's assets and allocations and information on weather patterns. it could require knowledge of a counterparty's carbon emissions. data at this level of
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granularity are often unavailable or difficult to find. 2/3 of respondents to a recent indicate they lack sufficiently granular data. filling these data gaps is critical. federal reserve staff are participating in a new network for greening the financial system that will create a detailed list of data gaps that are needed to model climate risk. climate change also poses unique modeling hurdles. the several decades over which climate risks are projected to materialize exceed a bank's typical risk management planning and time horizon. models are often backward looking and extrapolate historical trends, which may not be so valuable or reliable in the face of climate change.
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we need new tools and forward-looking approaches. we continue to strengthen our understanding of how banks are managing climate risk. it will be important to develop a framework for evaluating how banks are taking into account climate-related risk in their modeling and management of credit market liquidity and operational risk. some jurisdictions have developed programs to provide banks with supervisory expectations to mitigate the risk associated with climate change. ,he federal reserve cochairs currently, that group is mapping the transmission channel and studying the measurement methodologies of climate related financial risks to the banking system. they will use this analytical framework to develop recommendations for effective supervisory practices to mitigate climate related financial risk, taking into account the extent to which this might be incorporated in the
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existing framework. turning to community reinvestment, financial institutions can also help communities and individuals build greater resilience to climate risk. recent research highlights the significant ways in which lower income communities and communities of color are affected by natural disasters and climate risk. low and moderate income levelslds with the low of liquid savings tend to be less resilient to the temporary loss of income, property damage, displacement costs and health challenges faced from natural disasters. lmi communities and communities of color are often located in areas particularly vulnerable to climate risks. they have specific health related impacts or have housing more susceptible to disaster related damage. reinvestmentmunity act, banks have never been of allegation to meet the needs of
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their entire local communities, including lmi communities. existing regulations allow banks to receive credit for activities to revitalize and stabilize communities after a natural disaster. particularly in federally designated disaster areas. for natural disasters that have caused widespread devastation, such as hurricane katrina and maria, banking regulators together have extended that consideration to investments in stabilization and revitalization more broadly. it is important to lmi communities and communities of color to be proactive and working to mitigate equitably the risks of climate change in advance. reflecting this, our recent advanced notice of proposed rulemaking on the cra for the first time seeks feedback on providing cra credit to encourage loans and investments resilience. climate
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we want to encourage lenders to invest and rebuild in ways that will increase resilience to future climate risks in underserved and lmi communities. we are looking forward to receiving comments on those questions. the deadline is february 15 of next year. i laid out some of the important areas where climate change matters for our statutory responsibilities at the federal reserve. since that time, i have seen important progress in length the groundwork to incorporate climate considerations where they are relevant to our statutory responsibilities, both today and in the future. across the system, we have sought to deepen our understanding of the financial and economic implications to a variety of -- through a variety of seminars and forums. we have recruited economists with expertise in climate. we have also obtained climate data resources. last month, the financial stability report incorporated for the first time an analysis of the ways climate change
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presents risks to financial stability. similarly last month, the supervision and regulation report discusses how climate related risk can create micro-prudential risks and how supervisors are working to better understand, measure, and mitigate those risks. last quarter, rcra proposal proposal-- our cra proposed providing credit. we are looking forward to learning from and collaborating ,ith foreign central banks regulators on addressing data gaps and undertaking research on the implications of climate change for financial stability in the economy. in the years ahead, there are going to be important opportunities for collaboration across the u.s. regulatory agencies. these efforts will help equip the deepest financial market in the world to support our dynamic private sector in assessing and addressing climate change risk in transition to a greener economy.
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john, let me hand it over to you. john: thank you, lael. i have my voice, but not my picture, so -- there we go. like -- it took me eight months to learn how to get off mute. it's going to take me another month to learn how to get my picture up on the screen. governor brainard, you and i have worked together for more than 25 years. i am going to take the liberty of calling you lael. thanks. you covered a lot of ground in your remarks. to emphasize one point that you made at the outset, that the climate crisis is not impending, it's on top of us. people i think will remember 2020 the pandemic, but we also
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may remember it as the most active atlantic hurricane season on record, 30 named storms, 13 hurricanes. we are feeling pressure on our southern border right now because of two devastating hurricanes that hit last month in central america that produced climate refugees. it is true across the world. more than a million people were displaced in east africa because of flooding. the black summer in australia looks to be repeating itself. 47 million acres burning in term,a coined a new zombie fires, because the fires never go out, they burn and repeat underneath. the crisis is here, it is now. that really to your credit you're addressing it come about in your personal work at the fed and overall, the institutional work. i want to pick up some of the threads that you have discussed. i think one of the things that
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you have said in previous forums, you noted that it is time that we appropriately assess and address the quantitative implication of the all -- you but use have also suggested that we need to actively mitigate that risk by adopting policies and your comments i think on the cra are reflective of that. start by noting the in the last panel, annual report has yet to identify climate change as systemic risk. you noted that the financial stability report for the first ase identified climate risk an important systemic risk. why was that important? what are the next steps? i think you have talked about
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the data gaps. workplanfed's perspective, having now identified it, what comes next for the fed? gov. brainard: i think the fact that it was identified for the first time in the financial stability report reflected a lot of work. after we extensively analyzed climate related risk, we concluded that climate change could pose risks to financial stability. the financial stability report lays out the analysis of that. it talks about how it could increase -- in terms of the way we think about financial stability, there are both shock setting the system and questions about how resilient the system is to any kind of shock. climate change hits on both fronts. shocklimate related materializes, particularly at higher frequency and severity,
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they reveal new information that investors have to scramble to incorporate. that could trigger very abrupt repricing events. that inherentof uncertainty and complexity that we talked about earlier, it can also exacerbate vulnerabilities. it has features that could lead --a wide dispersion of financial contagion. that comes from that lack of clarity about true exposure to climate risk for both physical and financial assets. you have those vulnerabilities in the financial system that are also associated with climate change. what are we doing? good question. we are investing in much more granular data that we are going to need, or certainly investing in the expertise, the research and resources that we are going to need. we are working to support enhanced, more standardized
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disclosures that will contribute to greater transparency and more efficient pricing of risks. that should reduce the probability of sudden changes in asset prices. and then we are also looking at that broader question about how climate change could interact ,ith financial exposures interconnections between financial institutions in broader financial markets. that's where that climate scenario analysis really comes in. you really need to be able to identify those climate related physical and transition risk factors and understand how they would affect individual firms and interconnections between firms. you can see how that would lead to losses and other stresses as a whole. as i mentioned earlier, we are investing in work to ensure
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supervised institutions have the frameworks in place to identify, measure, and manage risks. and of course, collaborating with other jurisdictions that have made a lot of progress. benham notedioner arehe panel that there subnational climate disasters that could add up to greater risk, not only in regional economies, but kind of ladder up. are you thinking about both the country and the globe that way? that higher system crashes in one place kind of cascade into the economy through other chains and mechanisms? brainard: i think that kind of cascading impact is one of the core features of potential climate change scenarios. i think we have to think about that.
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reasons those the approaches are probably a very nuitful research avenue scenario kind of analysis avenue to explore. it is also very important that we are working across borders for the reasons that you say. both financial system stresses spell across borders. climate change is a global phenomenon. the way that those cascading events occur really has very little to do with national borders. john: yeah. we are certainly learning that with covid. gov. brainard: absolutely. john: i want to -- just out of curiosity, what do you feel like level of climate prediction
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and expertise is? where do you draw your information from? sometimes, i go from one room to another and i feel like i am getting dizzy. , the sense of the risk climate scientists' sense of risk is so much more profound than, at least up until recently, the financial, not just financial regulators but people in the financial world. gov. brainard: i think you have always done a good job of, you know, being rooted in that climate arena, but bridging out to other areas. for our part, sitting where we do with responsibilities and the economy and financial system, we have to invest in those bridges. invest in those data sources, invest in those relationships so that we better understand how to
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think about how to measure, how to model climate related risk. expertise is how that ripples three financial system, for instance. is thatare warning there is a lot of expertise in government organizations, and we have tapped into that. we have hired a number of climate science experts into our research and other divisions. ofhave a much broader set research activities going on because we have not just the board, but the 12 reserve banks. staff are in contact with members of the u.s. global change research program, which includes a variety of federal agencies. we are also exploring ways in models andtific data
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other information that might be available and that intergovernmental network can supplement our existing data on weather-related disasters and climate related risk. we have already done a quick bit of research. our staff has relied on data from the, noaa, atmospheric administration, from the department of energies. we are really accessing data sources broadly. even so, we have those data gaps that i mentioned earlier. i will just note a few research conferences. the federal reserve bank of san francisco is really active in their. we just -- there. we just did a conference on economic risks of climate change and financial regulation. out of theking federal reserve bank of new york. richmond, atlanta, they have all done some really interesting research collaborations. john: as the new administration
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begins to rebuild the scientific enterprise around climate change , which has suffered a lot of blows over the last four years, and restore scientific integrity, i think your insights into those data gaps will be very valuable to cross over as they are thinking about what investments to make in terms of that scientific enterprise more generally. -- thationed that you just has a network on a greening the financial system. there was some blowback by members of capitol hill. they suggested the fed was succumbing to outside political pressure and that the intention of this was really just to target unfavored industries rather than assess risk. how do you answer the critics? gov. brainard: yeah, so i would
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actually say that we -- this was one of the recommendations that was made in the cftc report. in fact, we saw a statement from a number of u.s. banks supporting our membership in the ngfs. i do think that private sector entities do understand the value of our participation in that network. we have already participated in of network in a sort research level. i mentioned earlier the work that we have been doing a data gfs -- on data gaps with an -- ngfs. we did a lot of groundwork link over the last few years. i think it will be incredibly valuable to us. it is a research and best
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practice sharing forum. a lot of our peers around the done a hugelready amount of work. we can benefit from that work. as you were noting so importantly earlier, climate change is not confined to any particular jurisdiction. the financial impacts most certainly cross borders. there is a lot that we can learn from our counterparts. i think this is a very beneficial organization for us to participate in as for members -- full members. we are looking forward to learning a lot. john: several more central banks are moving forward with climate related stress testing for financial firms. i would say that is certainly early days. do you think going forward that's going to be a helpful
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banks'r judging exposures and resilience to climate risk? is that where we are headed. -- added? -- headed? gov. brainard: i think scenario analysis is potentially useful to assess climate related risk. as we were saying earlier, climate change is inherently complex and very uncertain. with that high degree of uncertainty, scenario analysis is valuable. it allows you to explore a range , possible different scenarios to understand, you know, how those financial institutions might be exposed and might respond differently to different scenarios on climate and on the transition. think, you know, in terms of what advantages that kind of work brings to us, it gives us flexibility in exploring multiple scenarios.
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there are different time horizons potentially. it gives us views into the size financial individual institutions, the system overall. it might provide insights into how financial firms might adjust their business model under various scenarios. it is reasonable because there are both opportunities, as well as risks, it is reasonable to think that there could be a range of outcomes. we need to understand that. we know that banks are investing in some of these capabilities themselves. they have talked about wanting sector with the official to develop their own capacity. i think there is a lot of benefit here. as you said, early days. we are following closely the work of our peers and other jurisdictions. the bank of england is now restarting their climate
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committee.ploratory s has provided some scenarios that can be used by the international community. i think all those are valuable potentially. i will also say that because the nature of climate-related risks financialen,t than and economic downturns because of a deferent -- very different planning horizon, that kind of work would be distinct from the existing regulatory stress tests which are used to assess capital adequacy over a relatively shorter time. that some banks are stepping up to this. they are trying to understand their own exposure. they are trying to manage that risk. that those efforts
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pace thatrating at a is adequate to what the problem is, in terms of potential for risk? some of theu judge private sector efforts? gov. brainard: we are certainly canvassing banks. supervisors are interacting with our banks to understand how they are proceeding. you know, we do expect banks to control, andsure, monitor all material risks. for many banks, that is likely to extend to climate related risk. we are interested in seeing whether some banks already have developed best practices. we are seeing some banks beginning to adapt their governance, their risk identification and management, there scenario analysis and
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scenarioes -- their analysis and disclosures in the climate risk area. we have seen a broader shift among banks to approaching climate not from a purely representational perspective but recognizing from a financial risk perspective, which is really what we are talking about here. some are already doing preliminary scenario analysis to understand the sensitivity of their portfolios to physical and transition risk. some banks are stressing their mortgage portfolios to understand sensitivity to chronic flooding or sealevel rise, or their energy portfolios to understand the potential impacts from policy changes. in some cases, we are seeing the results of those actually appearing to influence business decisions. boards of directors are increasingly focused on risks posed by claimant. we have seen some internal climate groups inside some banks and some enterprise wide climate
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risk management frameworks to integrate climate considerations into strategic decision-making. all of the largest banks in the u.s. system have signed on to the tcfd financial disclosures. we also know that many of our banks have expressed to us that they are struggling with some data issues, such as the geographical granularity of their exposures, that long horizon and the uncertainty we talked about earlier. that is where our work cochairing the basel committee, the task force on climate related financial risk, we think that is important. it is already looking to issue analytic reports on transmission channels and measurement models. based on the, it will be in a position to develop recommendations for effective supervisory practices to
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mitigate climate related financial risks. we think there is a lot of work going on in this space within the private and public sector. i think that work will grow. isn: by the way, it obviously not unique to the banking system. the last panel discussed that in terms of the broader economy. soonort will be released on the fact that the federal -- soon. the fact that the federal government does not have a planning horizon commensurate with trajectories on climate, both in terms of the way they build the budget, the way potential investments are assessed both from a cost and benefit perspective. largea problem writ across people who are trying to anticipate what the future is going to look like. let me ask you a specific question. climatehink that
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specific supervisory guidance would help ensure banks are meeting the expectations to properly assess risk? whose job is that? gov. brainard: so, for banks, it is the banking agencies, course. -- of course. that is, generally speaking, the work that the tscr is doing will help us actually inform our approach. there are also a number of foreign regulators who have established supervisory expectations already. so, we are certainly looking to that. but the groundwork is the most important thing right now. we have to understand best practices. we have to understand how those risks flow through the as we try toisk
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figure out what the framework is. john: you, in your remarks, you talked about cra and utility of thinking about the cra as building resilience in communities. ofanted to take advantage your experience in the white asse and at treasury as well your current position at the fed to ask you about how the new administration to think about integrating -- ought to think about integrating resilience and community planning into what their task is. you have had a lot of experience over the years and may be can give us some advice about that. gov. brainard: at the fed, we strayper careful not to
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outside our lane. i think that is a good practice. is certainlyat it something that has been relevant to my work earlier and it is today. during my time working in treasury, for instance, i had a portfolio that included climate finance international. we just did a tremendous amount on these issues of climate resilience, and putting communities in the driver's seat to chart a path towards greater resilience. there, itime i was think we increased funding at the climate trust funds by five fold. .e also negotiated
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our first executive director to the green climate fund, which is all about giving international much greater resources to communities that are likely to be particularly impacted. greater resources and greater capacity to plan their futures in a way that will make them more resilient. cleano rolled out the energy guidance that governed the financing at the multilateral development banks. it really switched the focus entirely to clean energy. i think that has subsequently been rescinded, but that was very important as well. i would say that when we look at what we are learning here in the that you know, it is true climate change will have a negative impact on lmi
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communities and communities of color. there are a variety of intersecting reasons for the. -- that. you want to think about how to provide incentive to help communities make investments in their own resilience. just exposure of health disparities during this covid crisis i think points also to the need to kind of make those kind of events -- investments to improve both the quality of the economy, but also the health of the american people across the country. we have a year that is running up to glascow, a time of enhancement. first, we are going to go through a g7, g20. ,ertainly, coordinated sustainable recovery will be at the top of the agenda.
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the -- in addition to trying to find the sources of money, do you think financial stability, of highly burdened highlyes -- loads of burdened economies that are trying to recover from covid, how do those conversations intersect? that coordinated, sustainable recovery that we need with the need to invest and build back better? gov. brainard: yes, so i think certainly when we have major global shocks like we have had havecovid, you know, that affected every country and disproportionately affected vulnerable communities, i think there is an opportunity for toernational cooperation
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both, sort of, make those most vulnerable parts of the world more financially resilient by their overall financial stability. but also, to make investments, make investments in the future that are now informed by just how rapidly and how devastating you see this kind of transmission of these global shocks. you know, the pandemic is also something that the scientific community is very well-informed about these kinds of events. of actuallyenefits planning, preparing, creating the pain thatd ripples through the most vulnerable communities when those kinds of preparations are not -- communities. when those kinds of preparations are made, i think that could
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inform us going forward. one back to the cra, that is where we have seen a lot of our early learning about climate resilience came from the wake of natural disasters. now, we have more systematic research. we do see those communities being exposed, not just because they have better financial buffers, but also because they are often located in more climate exposed areas and because of the health of vulnerabilities that you mentioned earlier. earlier in your publication just yesterday published a piece talking about the vulnerability of particularly communities of color. that's why cra is a good tool. you can see that natural progression from recovering from natural disasters to proactively investing in climate resilien
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ce, the way to build back better in those communities and providing credit to banks to do that. john: we are at out of time and i see senator brown has joined us. i will ask you one last question and then we will turn it over. with enhanced disclosure data collection, they can help improve modeling for better planning for financial risk of climate change. is it important for regulators ultimately to take concrete steps to bolster the resilience of the financial system, even if this type of uncertainty remains? stability to enhance -- without regard necessarily to the specifics of the climate transition -- and how do you think we are doing
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that -- on that? gov. brainard: i think you are exactly right. we absolutely need more standardized and more actionable disclosures. we need the research on those interconnections and those exposures between climate, financial institutions and financial systems. we need that granular data. even with that, there is substantial uncertainty in this space. it is important to ensure, you as havingegulators, responsibility for financial stability, we do need to continue to try to make the financial system and financial institutions as resilient as possible to shocks associated with climate change risk, just as we do for other risks. you know, we should recognize the prevalence of that uncertainty, but we do need to have resilience in financial institutions and a resilient financial system.
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so, that is going to inform our going forward. john: thank you. lael, thanks so much for joining us today. it has really been deep and terrific. thank you for all the work that you are doing at the fed to make sure that these programs actually happen and move forward. so, now, i am going to take the opportunity to turn things over program officer for climate and clean energy finance. she will introduce senator brown. so, lael, good to see you. hope to see each other in person someday. sen. brown: hello, everyone, and thank you for attending the financial system and climate change. i am delighted that progress is on the horizon.
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we needstand that financial regulatory tools to leverage economic opportunity. this is all the more critical now as we sit in december, 2020 with over 12 million people unemployed. onse job losses fall hardest workers of color. during the past few years, there have been international financial regulators collaborating on climate finance , setting the groundwork for oversight tools that can unlock trillions of dollars for the green economy. these tools include, but are not limited to, mandatory disclosure of emissions for asset managers and lenders, enabling community focused lenders, including cooperative banks and credit unions, to move capital to climate change mitigation at the community level. there is a climate finance task for the entire sector, at the sec, federal reserve, cfpb,
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fdic, and more. the truth is, there has been very little financial policy action on climate globally. the u.s. is well-positioned to take on a leadership role and implement these ideas in 2021. with that, it is a pleasure to introduce senator sherrod brown to close out today's event. senator brown has been a leader on so many progressive priorities throughout his distinguished career, including financial regulations. he currently serves as a ranking member of the senate banking committee, where he has continued his tireless advocacy for a less predatory and more stable financial system that fills the needs of workers and helps those across the country. i am looking forward to hearing his thoughts on how financial regulators can integrate climate change into their core functions. senator brown, the floor is yours. thank you.
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it is a pleasure to be here. thank you so much. miss waite, thank you for the understanding of the insight and activism you have exhibited on the intersection of finance and climate and how important that is and how not nearly enough policymakers recognize it, but you obviously do. thanks to my friend, senator brian schatz from hawaii, who is one of the great young leaders in this country on a lot of issues, especially on climate. john podesta, always nice to share a stage, remote or not come with you. getting to speak after governor lael brainard is an honor. i wish a few more people at the federal reserve had the good sense she does about regulation and deregulation and the role of workers and climate and all that she has to for at the fed over the years. thanks to the panelists on all these issues. americans know that climate change is real. they see it hurting their lives, whether they live on the coast
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or in the midwest or south or the far west in this country. they are demanding that congress deliver results. they have endured for years of a president that essentially sets government up to fail. i was speaking with the secretary of the veterans administration, dennis mcdonough. we were talking about how at the v.a. and everything else, the president and republicans essentially set of government in a way that it will fail, and then turn around and say, government cannot work. we have seen on pretty much everything where we need federal leadership, particularly on the issue of climate change. would notpointees even let career scientists use the word climate change, let alone do anything about it. it's one of the reasons i think commanding,n a resounding 7 million vote victory.
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the days of republicans scaring too many of our allies talking about this are over. joe biden was clear that it was going to be one of his top priorities as president. michigan, pennsylvania, wisconsin. i said that climate change is one of the defining moral issues of our time. some seven points. notate is -- we're just going to be scared anymore on that issue. ohio inns are experiencing the effects of climate change and they know it. my state see toxic algae blooms are lake erie getting worse, threatening their drinking water. farmers are dealing with ever more uncertain growing seasons. the politics of this are changing and will change even faster when we show people that there is a real opportunity dealing with climate, there is a
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real opportunity to make our lives better. big oil, big corporations have spent billions of dollars trying to convince people that we have to choose between investment that goes the economy on the one hand, or preserving the planet for our children. they want people to think that climate change is not real or an unsolvable problem. we see it instead as a huge opportunity. because of that, we have had a failure of imagination. all trump and the republican party have done is sell workers a bunch of empty promises that coal mines and long shuttered plants would reopen, instead of treating the republic with respect and honesty. they have let peoples hard earned savings be invested in shrinking industries without their knowledge. united states allowed china to take the lead on clean energy manufacturing. have to change that starting january 20 and we do not need mitch mcconnell's blessing to do it. there is a lot the biden administration will be able to
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do on its own, particularly in the financial space. we have to ensure that banks and insurance companies are factoring the catastrophic risks of climate change in their investments and on their balance sheets. not just cynically passing the risk onto customers to shareholders, and as we know, always, ultimately, to taxpayers. if people's pensions and 401(k)s are invested, whose value is shrinking, instead of invested to where it creates jobs in the midwest and throughout the country, and a better return on their investment, they need to know about it. you heard from the governor the fed is looking at ways we must factor climate change into our economic assessment. states are doing this, too, as we heard from commissioner beeman and commissioner lee, the chairman of the fcc recognized their urgency of taking action. to make progress, we're going to have to take on corporate power,
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way better than congress has. we watched as wall street and the biggest companies fight on climate. the ceos make lots of money in the short term, damaging our planet in the long term. we are supposed to be holding the banks accountable. but they have members with ties to the greenhouse polluters. they need to do more than prod wall street to protect itself from climate risk, breaking up the big banks, limiting the risky activities they invest in, would clear the way for congress and agencies to make bolder actions. it would make it easier to stop wall street to find climate change and put all their assets at risks -- other assets at risk. it's going to take an all government approach. that's why i'm optimistic about the biden administration. it's about financial policy, may be more than most. fighting climate change isn't just an environmental issue.
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it's an economic one. i don't mean in the sense of sterile statistics about risk calculations. it's about communities. it's about how people live and work. we're not building a coalition for change if regulators in suits in washington nor the people who make this country work everyday. i think everyone listening today takes climate risk seriously. so do the people joe biden has appointed and will appoint, including the people he's looking at to be our financial watchdogs. one of the things i'm doing from a roll in the banking and housing committee is to encourage the regulators to insist that those regulators thing about climate not only as a risk, but also as an opportunity, an opportunity to build a sustainable economy that actually makes people's lives better in every community. it's not enough to think about the climate risks to a balance sheets. governments have to take risk to
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people's livelihoods to people they live in, the food they eat, investments for retirement. it's all of that. we have to think about the political risk coming more divided if we allow fighting climate to come at the expense of entire communities. we see what happened with globalization and with trade agreements, how corporations were allowed to write rules that funnel all the benefits to a smaller and smaller sliver of the wealthy in our country. we simply cannot allow that same thing to happen again. i want the people in our financial agencies thinking about the steelworker in mansfield, in middletown, ohio, the ohio river that borders my state, the restaurant owner who is their town's fracking boom is about the best. we just cannot think about moving investment away from the technology. we have to sell people on a positive vision of where we're moving that investment to. we make our homes more energy efficient and bring down energy
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costs. those are jobs that can't be sent to china. we create hundreds of thousands of manufacturing jobs, building , notric cars and batteries to mention the solar panels in the winter and other parts of the renewable energy supply chain. we can replace our internal 60,000 city buses, 60,000 smaller world transit buses. we can replace that entire fleet with zero emission buses, all made in the united states. we can build better, faster public transportation that gets people to work faster, with less hassle, working cleaner if you will. we can direct more investment to the communities that have been overlooked for decades by washington and wall street, whether a small town in appalachia or black and brown community anywhere in this country. i believe the biden administration is serious about marshaling our talents and our
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resources and ingenuity throughout the government and beyond to do this. that's what it will take. i've always refused the idea you have to resent the false choice between good environmental policy and good paying jobs. we've proven it in states like ohio. we proven it around the country. it's simply not true. we've proven in my state. ofproven it in toledo, one the biggest solar manufacturers in the country. we proven it in the auto industry, which is. making more fuel-efficient cars we see these opportunities. instead of running from them, we put americans to work. we create growing economy that lifts up all workers. if you love the country, you fight and make it work. he make sure they get decent wages with decent benefits. you put more of them to work. that's what a clean energy economy is all about. that's why we address climate change. thank you so much for having me
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today. it's an honor to appear in front of all of you and with all these distinguished guests. think all of you -- thank all of you. >> thank you, senator. [captions copyright national cable satellite corp. 2020] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit] >> c-span's "washington journal." to take your calls live on the air on news of the day and we discussed policy issues that impact you. coming up this morning, heather taylor discusses hunger and food insecurity in the u.s. amid the covid-19 pandemic. and then real clear education talks about the publication's recent public speech regulation. watch c-span's "washington journal" live at 7:00 eastern friday morning. and be sure to watch authors we all next week on washington journal beginning on sunday at 8:00 a.m. eastern, featuring books from time magazine's lance morrow and investigate of reporter cheryl atkinson,
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princeton university's eddie lodge junior, the hills opinion editor daniel alex, former trump organization executive arbor rez , and heritage senior fellow in the george w. bush and mr. -- administration. ♪ >> stay with c-span forever continuing coverage of the transition of power, as president-elect joe biden moves closer to the presidency. with the electoral college votes cast from states across the country, join us on january 6, live at 1:00 p.m. eastern, for the joint session of congress to count the votes and declare the winner for president and vice president. and finally, at noon on january 20, the inauguration of the 46th president of the united states. our live coverage begins at 7:00 a.m. eastern, from the statehouse, to congress, to the white house. watch it aiv


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