Could climate change wipe out America’s financial system?

The third section of the executive order directs Yellen and the FSOC to assess, “in a detailed and comprehensive manner, climate-related financial risk, including physical and transition risks, to the financial stability of the federal government and the stability of the U.S. financial system” and report within 180 days.

Yellen is also supposed to ask the Federal Insurance Office “to assess climate-related issues or gaps in the supervision and regulation of insurers, including as part of the FSOC’s financial stability analysis, and further assess, in consultation with States, the potential for major disruptions to private insurance coverage in areas of the country particularly vulnerable to the impacts of climate change.

The order does not specifically mention life insurance, annuities or concerns about the possible effects of climate change on the investments of life insurance and annuity issuers.

Linda Lacewell, New York State Superintendent of Financial Services, in March proposed draft climate change management standards for insurers. Lacewell’s proposed rule would require all insurers to analyze how hurricanes, floods, wildfires and other weather-related events might affect their investment portfolios.

Executive Order Section 4: Resilience of Life Savings and Pensions

In the life savings and pensions section of the order, the president states that the U.S. Secretary of Labor should identify any agency actions that may be taken under the Workplace Safety Act of 1974. Employee Retirement Income (ERISA) and other laws to “protect life savings and pensions.” workers and families of the United States against the threats of climate-related financial risks.

Labor Secretary Martin Walsh is supposed to report in 180 days.

The Labor Secretary is also expected to consider releasing, by September, a draft rule that would reverse a Trump administration effort to discourage pension plans from linking investment decisions to environmental sustainability concerns.

The US Department of Labor has already indicated that it will refuse to enforce the ban on sustainability-related investment decisions.

(Image: gawriloff/Adobe Stock)


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Don F. Davis