Climate change is already having a significant economic and financial impact on the United States, and it may cause asset value losses in the coming years that could spread throughout the U.S. financial system, according to Treasury Secretary Janet Yellen.
Yellen will tell a new advisory board of academics, private-sector experts, and non-profits that the annual number of billion-dollar disasters has increased fivefold since the 1980s, even after accounting for inflation.
“As climate change intensifies, natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system. In addition, a sluggish and disorderly transition to a net-zero economy can cause financial system shocks,” she said in remarks prepared for delivery at the advisory board’s first meeting.
She claims that severe storms and wildfires in California, Florida, and Louisiana, as well as tornadoes across the South and intensifying storms on the West Coast, demonstrate how climate change is accelerating.
The United States government reported in January that 2022 would tie 2017 and 2011 for the third highest number of billion-dollar disasters, with a total cost of at least $165 billion.
During the year, there were 18 weather and climate disasters that each cost at least $1 billion, including two tornado outbreaks in the south and southeast in March and April, as well as massive wildfires across the west.
Yellen stated that the Financial Stability Oversight Council’s (FSOC) new Climate-related Financial Risk Advisory Committee, established last October, would strengthen US efforts to mitigate the risks that climate change poses to financial stability.
The meeting comes after the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve issued a slew of new regulations on climate-related risk management after the FSOC, a top U.S. regulatory panel, first identified climate change as a “emerging threat” to U.S. financial stability in October 2021.
The Federal Insurance Office has also proposed collecting data from insurers to assess climate risk, and the Federal Reserve announced in January that it would conduct a pilot climate scenario analysis to study the bank’s climate risk-management practices.
In addition, the Securities and Exchange Commission of the United States is set to issue a new rule on companies’ climate-related disclosures in April.
Republicans, however, are challenging the Biden administration, claiming that the agencies have written rules outside of the legal process. Republican leaders want to use their slender House majority to limit administrative oversight of climate rules and other issues.
Climate-related events, according to Yellen, have already prompted insurers to raise rates or stop offering insurance in high-risk areas, which could have disastrous consequences for homeowners and their property values. She believes this could spread to other parts of the financial system.