The National Academies Press

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From page 459... ... 11 Aligning the Financial Sector and Capital Markets with the Energy Transition ABSTRACT The financial sector directs the flow of capital and financial services to businesses and households throughout the United States and has been increasingly focused on the risks and opportunities associated with the net-zero transition. Historically, some communities have not had equal access to these services, an inequality that the energy transition must address. Read the entire page →
From page 460... ... • What changes have happened in the financial sector since the committee's first report in February 2021, considering actions by the federal government, state governments and the private sector? • What changes are still needed in the financial sector during the 2020s to address both risks and opportunities and to help move the nation toward an equitable net-zero economy by midcentury? Read the entire page →
From page 461... ... The committee discussed the importance of private-sector actors as well as federal agencies taking climate risk into account in their own decisions. The committee recommended that Congress take several actions: • "Direct the Securities and Exchange Commission (SEC) Read the entire page →
From page 462... ... RECENT LEGISLATIVE, REGULATORY, OTHER POLICY, AND NON-GOVERNMENTAL ACTIONS RELATED TO THE FINANCIAL SECTOR Since early 2021, the federal government has initiated action on the two topics where the committee recommended policy change: requirements for public companies to disclose climate risk and inclusion of climate risk into financial sector risk assessments; and the seed funding for a new national green bank. Additionally, actors in the private sector have shown increased interest in corporate ESG accountability. Read the entire page →
From page 463... ... would hold three complementary grant competitions to distribute grant funding under the Greenhouse Gas Reduction Fund: a $14 billion National Clean Investment Fund competition to two to three national nonprofits to catalyze projects; a $6 billion Clean Communities Investment Accelerator competition to be awarded to two to seven "hub nonprofits" to provide access to financing for households and others in low-income and disadvantaged communities and to do so through networks of community lenders; and a $7 billion Solar for All competition for up to 60 grants to state, tribal and local governments to support families' access to affordable solar installations (EPA 2023a) Read the entire page →
From page 464... ... investors with decision-useful information to assess a registrant's exposure to, and management of, climate-related risks, and in particular transition risks" (SEC 2022a) Read the entire page →
From page 465... ... ESG has begun to play an important role in climate investing. 9 The impact of "socially 168F responsible" investing began to demonstrate strength as early as the 1960s, most notably in the form of the anti-apartheid investment campaign in which many public and private institutions holding large financial assets pressed for disinvestment in South Africa because of its racial segregation policies and practices. Read the entire page →
From page 466... ... More could be said about potential activism in this space, its direct and indirect mitigation consequences, and its interaction with efforts to strengthen mitigation policy. While valuable, the committee has instead chosen to focus on ensuring that financial flows can follow the changing economics of decarbonization, on addressing information and regulatory needs surrounding financial sector risks, and providing equitable access to these flows and allocation of risk. Read the entire page →
From page 467... ... capital, have insufficient income or experience other situations (e.g., being renters rather than homeowners) that prevent them from taking advantage of such programs and policies. Read the entire page →
From page 468... ... to entities that provide financial assistance for projects that reduce GHG emissions, of which at least $15 billion is targeted to projects in disadvantaged communities; CDFIs will likely participate in some fashion in such programs. (See the discussion of the National Green Bank and the EPA's GHG Reduction Fund, in Section 2 above.) Read the entire page →
From page 469... ... assist in integrating building electrification into their green financing offerings (Fannie Mae 2022) Read the entire page →
From page 470... ... projects. OMB should then require federal agencies that issue funding for energy efficiency and other greenhouse gas (GHG) Read the entire page →
From page 471... ... Cataloging and analyzing existing data sources, as climate-related data has not been extensively used by financial regulators and investments will be necessary to incorporate and utilize available data. Another set of challenges involves data gaps. Read the entire page →
From page 472... ... Recommendation 11-4: Fill Gaps in Federal Financial Risk Data and Information Collection Rules. Federal agency decision makers that are members of the Financial Stability Oversight Council (FSOC) Read the entire page →
From page 473... ... standardized scoring of climate-friendly activities and regulation of voluntary carbon markets -- address the interest of financial-sector actors seeking to understand the climate change risks and opportunities associated with different economic activities or offsets. The other two discussed here -- climate risk monitoring/supervision and capital requirements for banks -- focus more on the overall performance of financial markets themselves. Read the entire page →
From page 474... ... Voluntary carbon-offset markets have faced skepticism pertaining to the quality of the offsets they are offering. Summarized in a discussion paper from the International Organization of Securities Commissions, vulnerabilities for these markets include credit integrity concerns (including, but not limited to, double-counting, transparency and verification of carbon reduction calculations, and conflictsof-interest) Read the entire page →
From page 475... ... As noted above, the FSOC issued a report in 2021 on climate-related risks to the financial sector. In addition to the findings and recommendations of that report related to collecting and disclosing climate-risk data and information, which were discussed previously in this chapter, the FSOC also concluded that financial regulators should assess and mitigate climate-related risks to the stability of the nation's financial institutions and markets. Read the entire page →
From page 476... ... of these discussions exist within various agencies' mandates to appropriately and equitably protect investors and society. This falls within ordinary prudential actions. Read the entire page →
From page 477... ... 11-5: Strengthen Climate Securities and • Finance Rigorous and Disclosure Rules and Exchange Transparent Analysis • Non-federal Standardize Data and Commission and Reporting for actors Methods (SEC) Adaptive Management Reforming Financial Markets 11-6: Implement Financial FSOC members • Finance Reforming Financial Stability Oversight Council and the Federal Markets (FSOC) Read the entire page →
From page 478... ... Broekhoff, D., M Gillenwater, T Read the entire page →
From page 479... ... EPA (Environmental Protection Agency) Read the entire page →
From page 480... ... Hall, D.S. Read the entire page →
From page 481... ... Newburger, E Read the entire page →
From page 482... ... United Nations. Read the entire page →

From page 459...

... 11 Aligning the Financial Sector and Capital Markets with the Energy Transition ABSTRACT The financial sector directs the flow of capital and financial services to businesses and households throughout the United States and has been increasingly focused on the risks and opportunities associated with the net-zero transition. Historically, some communities have not had equal access to these services, an inequality that the energy transition must address.