US SEC chief Clayton’s legacy to include inertia on climate change, unlike other Trump-appointed financial regulators

21 December 2020 00:00 by Neil Roland

USA flags on building

Jay Clayton’s legacy as US Securities and Exchange Commission chairman will include his reluctance to address climate change, unlike two other US financial regulators appointed by President Donald Trump.

Both Federal Reserve Chairman Jerome Powell and Heath Tarbert, head of the Commodity Futures Trading Commission, have allowed their agencies to move forward on global warming without incurring the public ire of the science-denying president.

Clayton, who has said he will step down by the end of the year, has rejected investors’ calls that corporations be required to expand their environmental, social and governance disclosures in a uniform format.

He told the Senate Banking Committee last month that companies should have to reveal their climate-related risks only if they are “material to the company’s performance and prospects.”

“What people want is decision-useful information,” Clayton said.

In January, the SEC chairman explained the elements of his thinking, contending that climate-change disclosure issues are “complex, uncertain, multi-national/jurisdictional and dynamic.”

“Capital allocation decisions based on, or materially influenced by, climate-related factors are substantially forward-looking and likely involve estimates and assumptions,” he said (see here).

Clayton also said he is “mindful” that, as a regulator, he shouldn’t be “substituting my operational and capital allocation judgments for those of issuers and investors.”

A Democratic SEC commissioner, Allison Herren Lee, has sought unsuccessfully to prod Clayton into action.
“We have heard from investors overwhelmingly that they want and need these disclosures,” she said in June.

President Trump has long disputed the scientific consensus regarding climate change, and last month, the US became the first country to formally withdraw from the 2015 international Paris Agreement on climate change.

Trump has consistently expressed doubts about scientific findings on humans’ impact on global warming. For example, the federally mandated Fourth National Climate Assessment in 2018 outlined the potential impacts of climate change across various sectors of the US economy. “I don’t believe it,” Trump said.

— Fed action —

On the heels of the Nov. 3 presidential election, the Fed’s top regulator, Randal Quarles, said the central bank asked to join an international group of central banks and supervisors that tries to identify and manage risks to the financial system posed by global warming.

Powell said last week that this Network for Greening the Financial System had accepted the Fed’s request.

“As we develop our understanding of how best to assess the impact of climate change on the financial system, we look forward to continuing and deepening our discussions with our NGFS colleagues from around the world,” he said (see here).

For months, Powell had resisted calls by the Fed’s sole Democrat, Lael Brainard, to join the group.

— CFTC moves —

At the CFTC, a bipartisan group under Tarbert voted unanimously to create an industry advisory panel to report on the effects of global warming on financial markets.

The panel reported in September that global warming threatens US financial markets, and that "urgent" action is needed.

“A world wracked by frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system,” the report said (see here).

The study is the first broad US governmental look at the impacts of climate change on Wall Street.

The assessment was first recommended by Democratic CFTC Commissioner Rostin Behnam.

Tarbert hedged on the study’s recommendations for new regulations.

“The subcommittee’s report acknowledges that `transition risks’ of a green economy could be just as disruptive as the possible physical manifestations of climate change, and that moving too fast, too soon could be just as disorderly as doing too little, too late,” he said.

“Transition risks” involve the damage that could be incurred by the oil and gas industry if the government adopted policies to restrict carbon dioxide and methane pollution.

Tarbert has said he will step down by year-end.

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