U.S. Warns Climate Poses ‘Emerging Threat’ to Financial System

The report by the Financial Stability Oversight Council, which is led by the Treasury secretary and includes leaders from the major financial regulatory agencies, portrayed the financial threat of climate change in stark terms. Higher temperatures are leading to more natural disasters, such as hurricanes, wildfires and floods. These, in turn, are resulting in damaged property, lost income and disruptions to business activity that threaten to alter how assets, such as real estate, are valued.

At the same time, the move away from fossil fuels could cause a sudden drop in the price of stocks and other assets tied to oil, gas, coal and other energy companies, or sectors that rely on them such as carmakers and heavy manufacturing. Such a shift could hurt the stock market, retirement savings and other parts of the financial sector.

“The financial sector may experience credit and markets risks associated with loss of income, defaults and changes in the value of assets,” the report said, adding that liquidity and legal risks are also concerns.

The council warned that low-income communities and people of color were disproportionately at risk from climate change because they lacked the resources to protect their properties and weather a loss of income. This dynamic threatens to exacerbate income inequality in the United States.