By David Callaway, Callaway Climate Insights
Central bankers rarely merit many headlines, but in times of great crisis, they can become global celebrities. Think Timothy Geithner. The former head of the New York Federal Reserve played a key role in saving many of Wall Street banks during the great financial crisis, eventually becoming Treasury Secretary for former President Obama.
That’s why investors and financial leaders will do well to note the appointment this week of Kevin Stiroh as head of the Fed’s new climate change situation room, the Supervision Climate Committee (SCC). Tasked with identifying the risks to the financial system from climate change, including stranded assets and systemic threats to mortgage and banking loans, the SCC will soon become one of the leading alphabet acronyms in the global climate finance evolution.
Stiroh is currently head of the financial supervision group at the New York Fed, the most powerful in the country. A doctor of philosophy and economics from Harvard and graduate of Swarthmore College, he’s been at the Fed most of his career. He also is co-chair of a task force on climate risks for the Basel Committee, the international supervision group of central bankers, based in Basel, Switzerland.
The risks to the financial system from climate change are just starting to attract the attention of governments and regulators. Last year, both the Fed and the Commodity Futures Trading Commission released reports focusing on the threats of climate-related disasters on global banks and asset managers. The unwinding of fossil fuel investments, picking up pace in the past several months, also threatens market stability, as well as local and national economies, depending on how they are handled.
In a speech three months ago to a risk conference, Stiroh mentioned the “impairment of collateral from severe weather events,” and “mark-to-market losses from the devaluation of companies with stranded assets,” i.e. fossil fuel companies. Read the speech here.
Expect stress tests for banks to soon be on the horizon. And expect to hear more from Stiroh and the SCC as the Fed and the Biden administration turn their climate sights on Wall Street.
More insights below. . . .
Save the date: Callaway Climate Insights and Frans Timmermans
. . . . In an special event for Callaway Climate Insights readers, European Union Climate Commissioner Frans Timmermans will participate in a webinar on Tuesday, Feb. 23 to discuss Europe’s energy transition goals for 2030 and how it is working with the incoming Biden Administration on the climate emergency. Powered by the Irish Business and Employers Confederation (IBEC), the event will also include Eamon Ryan, minister for the environment, climate and communications in Ireland. Timmermans is one of the most influential climate leaders on the globe — a straight talker who will share his insights on transatlantic deals, how corporations can respond to the climate crisis, and public-private partnerships. The webinar will also feature a Q&A session for our paying subscribers to ask questions. More to come next week. . . .
EU Notebook: WTO rules give Europe’s climate ambitions a reality check
. . . . A European Union proposal to attach carbon border fees to the imports of polluting products is meeting resistance, not least of which from world trade officials, who worry about how they will be calculated, and more importantly, what will happen to the money raised, writes Vish Gain from Dublin. The plan raises the specter of protectionism, despite potential for helping offset carbon emissions.
The industries projected to bear the heaviest brunt of the new scheme are cement, steel and chemical industries, to name a few. These energy-intensive industries face tough international market competition and find it hardest to transform manufacturing processes to minimize carbon emissions.
“It’s likely that we will start with raw materials,” said Angel. “If you deal with complex products the level of complexity that you need to handle is higher.” The system will later be extended to more complex supply chains. . . .
Investors expect repeal or rewrite of Trump’s Dept. of Labor rule on ESG
. . . . Investors expect the controversial Department of Labor rule on whether fiduciaries can use ESG strategies, which took effect only days before President Biden took over, to soon be tossed, along with other Trump regulations, writes Bob Powell from Boston. The rule, opposed by the vast majority of the investment management industry last year during the public comment period, will at the very least be rendered unenforceable until the government can get past Covid and take a look.
According to Dannhauser, incoming Labor Department Secretary Marty Walsh, who most recently served as mayor of Boston, is thought to be friendly to a more progressive view of ESG’s role in investment analysis. Boston had an ESG Investment Initiative. “But the Labor Department agenda is crowded with pandemic-related issues, so I’d expect maybe some sub-regulatory moves like guidance to be issued shorter term and more comprehensive regulatory reform later,” Dannhauser said. . . .
Massachusetts transit system, 4th busiest in U.S., goes 100% renewable
. . . . The Massachusetts Bay Transit Authority is now operating 100% on renewable energy, promising to slash emissions by more than a third and save millions in energy costs, writes George Barker from Boston. The state’s largest consumer of electricity is setting an example for other large urban operations, not only in operating more cleanly, but in lowering borrowing costs through green bonds.
There’re plenty of trains, buses and ferries to power, and plenty of people to move. The MBTA is figuring out how to do it cleanly, and Guzzetti mentioned the Los Angeles County Metropolitan Transportation Authority and the San Francisco Municipal Transportation Agency as other major transit agencies that have made themselves sustainable. With a federal push to a cleaner country, combined with a need for economic recovery following a pandemic, Guzzetti sees the momentum public transit already has in becoming more sustainable to only increase going forward. . . .
The doughnut that ate capitalism, and why Amsterdam is licking its lips
. . . . Fabulous piece of financial journalism by Ciara Nugent in Time Magazine’s Feb. 1 edition about an experimental economic theory being tried in Amsterdam, called “doughnut economics.” The theory, first laid out four years ago by British economist Kate Raworth, essentially postulates that instead of everyone trying to grow richer, societies should try to place their populations inside the doughnut hole between a foundation of economic well-being for everyone and a ceiling of environmental damage limitations. Read Amsterdam Is Embracing a Radical New Economic Theory to Help Save the Environment. Could It Also Replace Capitalism? Some critics say it’s an attack on capitalism, and maybe so, but who doesn’t like doughnuts? . . .
. . . . General Motors went all in on electric vehicles Thursday, promising to sell zero-emissions models only by 2035. Shares of GM (GM), which makes about six times more vehicles a year than Tesla (TSLA), popped as much as 7% on the news. The news came as Bloomberg reported that the vast majority of new investment into clean energy in the past year went into the electric vehicles market, rather than renewable energies such as solar or wind. Fourteen years from now might seem like a long time, but remember 14 years ago we were still just getting used to our new iPhones. . . .