- Treasury Secretary Janet Yellen warned on Tuesday that climate change could cause a loss of value in the wealth of the entire country’s financial system in the coming years.
- Yellen made the remarks during the first meeting of the Climate-related Financial Risk Advisory Committee.
- “A delayed and disorderly transition to a net-zero economy could cause shocks to the financial system as well,” Yellen said.
US Treasury Secretary Janet Yellen delivers remarks on ‘Next Steps in the Evolution of Development Finance’ at a Center for Strategic and International Studies (CSIS) in Washington, US on February 9, 2023. \
Leah Millis | Reuters
Treasury Secretary Janet Yellen warned on Tuesday that climate change is already taking a significant economic toll on the US and could lead to extensive losses for the financial system in the years to come.
Yellen made the remarks during the first meeting of the Climate-related Financial Risk Advisory Committee (CFRAC), an advisory board created last year by the Financial Stability Oversight Council in an effort to strengthen US measures to minimize climate risks to the economy.
“As climate change intensifies, natural disasters and warming temperatures can lead to declines in asset values that can cascade through the financial system,” she said during the meeting. “A delayed and disorderly transition to a net-zero economy could also cause shocks to the financial system.”
Climate-related disasters have caused economic losses through damage to infrastructure, disruptions to critical services and losses in property values, according to a federal government report released last year. The United States experienced an average of nearly eight $1 billion disasters each year over the past four decades. Over the past five years, this number has increased to almost 18 events annually.
“These impacts are not hypothetical,” Yellen said. “They’re already playing out.”
Yellen said states like California, Florida and Louisiana have recently endured particularly severe storms and wildfires, noting how tornadoes across the South and intensifying storms on the West Coast indicate that climate change is accelerating.
She said some insurers are raising rates or even pulling out of high-risk areas in response to rising losses.
“This has potentially devastating consequences for homeowners and their property values,” Yellen said. “Developments like these could spill over into other parts of our interconnected financial system.”
The Biden administration has taken actions to address climate risks to the economy, including an impending action by the Securities and Exchange Commission that would require publicly traded companies to disclose their greenhouse gas emissions. The agency is now considering scaling back the proposed climate disclosure rule.
Yellen has previously promoted the historic climate investments in President Biden’s Inflation Reduction Act, specifically highlighting the legislation’s tax credits and other private sector incentives aimed at lowering energy costs for consumers and domestic greenhouse gas emissions.
SEE: Potential relaxations in climate disclosure rules