Reversal of Biden-Era Climate Focus
The Financial Stability Oversight Council (FSOC), a key U.S. financial regulatory body chaired by Treasury Secretary Scott Bessent, has voted to disband two climate-focused advisory committees. Established under the Biden administration, the Climate-Related Financial Risk Committee and the Climate-Related Financial Risk Advisory Committee were tasked with monitoring financial risks posed by climate change. This decision, made during a meeting at the U.S. Department of the Treasury on September 10, marks a significant shift away from embedding climate threats into financial regulations.
The move to revoke the charters of these committees was unanimous, with no dissent or abstentions recorded during the voice vote. This action effectively ends a multi-year effort by the previous administration to integrate climate risk into the broader framework of financial oversight. The Biden-era policies had identified climate change as an 'emerging and increasing threat to U.S. financial stability,' as noted in a 2021 FSOC report.
Policy Pivot to Growth and Systemic Risk
Treasury Secretary Scott Bessent has described this decision as part of a 'back to basics' approach to financial regulation. The focus is shifting from climate-specific oversight to broader priorities such as economic growth and addressing systemic risks within the financial sector. This policy reversal aligns with the current administration's emphasis on reducing regulatory burdens and fostering an environment conducive to financial innovation and expansion.
The disbanding of these panels signals a departure from the previous administration's push for enhanced climate-related disclosures and scenario analyses by financial institutions. While the Biden administration had leveraged FSOC to assess climate risks, as highlighted by former Treasury Secretary Janet Yellen in 2021, the current leadership under Bessent appears to prioritize different aspects of financial stability. This change could lead to reduced guidance for banks and insurers on managing climate-driven financial risks, potentially increasing institutional uncertainty in the sector.
Implications for Financial Regulation
The termination of these advisory groups raises questions about the future of climate risk management within U.S. financial systems. Without centralized oversight, individual agencies may adopt fragmented approaches to addressing climate-related financial risks, potentially slowing the development of standardized rules. Some industry observers note that this could create challenges for financial institutions seeking clear regulatory frameworks to navigate potential climate impacts on their operations.