California moves forward on climate disclosure standards, as pressure on issue builds in the US

Civil society and members of Congress push US regulators to do more on climate change

The State of California plans to develop a standard for climate risk disclosure as US agencies face mounting political and civil society pressure on climate change.

A new Climate-Related Risk Disclosure Advisory Group will be led by California Governor Gavin Newsom’s Office of Planning and Research, in partnership with Stanford University’s Sustainable Finance Initiative. 

In a statement, the Governor called for the Advisory Group to support the State of California in developing a climate reporting standard consistent with federal and international best practice.

“There is no question that climate change is having an immediate impact on California’s fiscal and economic health,” he said. 

The Advisory Group will be co-chaired by Kate Gordon, Director at the Governor’s Office of Planning & Research and Senior Advisory to the Governor on Climate and Alicia Seiger, Managing Director at the Precourt Institute’s Sustainable Finance Initiative at Stanford University and Stanford Lecturer.

Its members include Janine Guillot, CEO of the Sustainability Accounting Standards Board and Dave Jones, Director of the Climate Risk Initiative at UC Berkeley Law School who, during his tenure as California’s Insurance Commissioner, was one of the first regulators globally to mandate climate disclosure. 

The move comes as today US sustainability body Ceres releases a report ranking US financial federal regulators on climate action. It found bodies such as the Federal Reserve (Fed), Securities and Exchange Commision (SEC) and Commodity Futures Trading Commission have progressed notably in the last 10 months, but all regulators still lag their international counterparts and scientific expectations. 

Speaking to RI, Steven Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets, said: “We’ve talked to all of them. I can’t speak for each agency, but I am hopeful that in the next few months that there will be more activity.”

He noted that last week the Financial Stability Oversight Council, which coordinates 14 regulatory agencies, had its first meeting under the leadership of US Treasury Secretary Janet Yellen and “they focused for the entire hour on climate”.

Secretary Yellen reportedly called climate change “an existential threat” and the biggest emerging risk to the health of the US financial system, at the meeting.

In attendance at the meeting were Allison Herren Lee, Acting Chair of the SEC, who called for standardised disclosure on climate risk at RI Digital: USA 2020, and Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, who presented on climate change and financial stability. 

The Fed is under political pressure to do more on climate change from a group of Democratic Congress members including Alexandria Ocasio-Cortez and Jamie Raskin, and a group of NGOs. 

In separate, but similar letters last week, they welcomed the creation of the Supervision Climate Committee and the Financial Stability Climate Committee by the Fed in recent weeks, but said more concrete changes are needed to its supervisory framework and monetary policy activity. 

This includes the Fed excluding fossil fuel assets from its asset purchase programmes and collateral frameworks and aligning its Covid-19 relief credit facility and the terms of future emergency lending programmes with the Paris Agreement. 

“Not only did the Fed buy risky fossil fuel assets in 2020 without any conditions,” they say, “its corporate bond purchases were also heavily overweight in the energy sector (defined as oil/gas and coal value chain companies exclusively)”. 

“Over $1 billion (19.5%) of the Secondary Market Corporate Credit Facility portfolio is composed of bonds from the Energy or Utilities sector, including via ETFs with no maturity date.”

But, the Fed and the SEC are also facing political pressure from members of the Republican party who say the agencies are overstepping their mandates with regard to climate change action.

Rothstein said: “Mother Nature doesn't know when there's a fire or a flood or an ice storm whether it's a red state or a blue state. In fact, Texas, which is a red state, had an awful ice storm just a month ago… natural disasters are affecting every part of our country. So our hope is that we can move forward. 

“There's clearly executive action which the President can do on his own, and the regulatory agencies can move forward with some of these steps without legislative support. While we’d like them to support, some of this can be done without them.”