A Commodity Futures Trading Commission climate-risk committee is sticking to its goal of issuing recommendations in June for adapting financial markets to the impacts of climate change, despite the currently raging COVID-19 epidemic, the commissioner in overseeing the effort told Regulatory Intelligence.
CFTC commission member Rostin Behnam said the work of the financial and industry experts on the panel has become more critical in light of the pandemic.
“At this point, I do not expect the coronavirus outbreak to delay the subcommittee’s work. However, I am fully aware of the personal and professional challenges that the subcommittee members face during these turbulent and uncertain times,” Behnam said.
“Prioritizing the safety and health of the subcommittee members above all else is my priority, and I will certainly adjust the existing timetable as needed,” he said. “As we collectively work through the many challenges and impacts of the virus on human health, the economy, and financial markets, I believe the report and its recommendations become that much more critical to help policymakers address future challenges.”
The committee began its work in December, and is chaired by Bob Litterman, founding partner and risk committee chairman of Kepos Capital. The CFTC’s committee is composed of 35 experts from financial markets, the banking and insurance sectors, as well as the agricultural and energy markets, data and intelligence service providers, the environmental and sustainability public interest sector, and academic disciplines singularly focused on climate change, adaptation, public policy, and finance.
In describing his expectations for the group’s work in a recent interview with Regulatory Intelligence, Behnam said: “I thought it was critically important for me to convene this group and to share with the commission, and other regulators, what market participants view as the financial risks resulting from climate change and potential baseline policy ideas that we as regulators can consider to protect and steward the financial markets.”
“The climate question in my mind is too important, too existential to wait for the perfect solution,” Behnam said.
“I think the challenge we’re going to face in the years to come is to build a coalition around policy ideas that market participants can agree with and that people understand . . . and most importantly, come up with an outcomes-based appropriate solution that will actually address those risks,” he added.
The climate committee is the first such group convened by a U.S. regulator. Climate risk has risen on the ladder of policy issues for other agencies as well, such as the Federal Reserve. Governor Lael Brainard said late last year that she looked forward to the CFTC’s policy recommendations.
But with the emergence of COVID-19, there is growing debate among experts and policymakers over whether the pandemic will spur governments and businesses to more aggressively address climate change, or whether the virus might upend such efforts. In the financial sector, some senior executives argue that climate risk has become more urgent given the impact of the virus on human health and the economy.
“Grey rhinos” – climate change and viruses
At a JPMorgan conference on environmental, social and governance issues (ESG) last week, Philipp Hildebrand, vice-chairman of BlackRock, said COVID-19 represented a sustainability crisis.
“This pandemic is more of what risk expert Michele Wucker had called a ‘Gray rhino’, a highly obvious, highly probable, but still neglected danger,” Hildebrand told the virtual conference according to a JPMorgan summary.
“It’s a risk that most of us simply have not paid enough attention to. Climate change of course, is another obvious ‘Grey rhino’. And in fact, the relationship between the two rhinos – climate change and global diseases – is well established and growing. Rising global temperature extends the reach of vector-borne illnesses, and localized air pollution and environmental degradation increase health risks for local populations,” said Hildebrand.
Researchers at Harvard University agree there are links between climate change and infectious diseases. Writing in a recent article, Dr. Aaron Bernstein, director of Harvard C-CHANGE, a center focused on climate, health and environmental issues, said while there wasn’t direct evidence that climate change is influencing the spread of COVID-19, climate change does increase the risk of pandemics.
“As the planet heats up, animals big and small, on land and in the sea, are headed to the poles to get out of the heat. That means animals are coming into contact with other animals they normally wouldn’t, and that creates an opportunity for pathogens to get into new hosts,” said Bernstein.
“Many of the root causes of climate change also increase the risk of pandemics,” he added. “We have many reasons to take climate action to improve our health and reducing risks for infectious disease emergence is one of them.”
Climate risk and pandemics remain a collective action problem
Still, others argue that the difficulties governments around the world have faced in tackling COVID-19 illustrate how hard it is to rally citizens, companies and others around a problem that threatens their very existence.
“To slow the spread of COVID-19, governments are clamping down to force collective action when individuals fail to follow guidelines. Cities across the world are shutting down businesses and events, at great cost,” says Jason Bordoff, a former senior director on the staff of the U.S. National Security Council in the Obama administration, in a Foreign Policy article.
“Yet the effectiveness of any one government’s action is limited if there are weak links in the global effort to curb the pandemic—such as from states with conflict or poor governance—even if the world is in agreement that eradicating a pandemic is in every country’s best interest,” Bordoff said.
“Any climate benefits from the COVID-19 crisis are likely to be fleeting and negligible. Rather, the pandemic is a reminder of just how wicked a problem climate change is because it requires collective action, public understanding and buy-in, and decarbonizing the energy mix while supporting economic growth and energy use around the world,” he added.