Treasury Secretary Janet Yellen has cautioned that climate change could cause "declines in asset values" and potentially damage the financial system if the transition to renewable energy is not orderly.
Yellen's remarks were made at the inaugural meeting of the Climate-Related Financial Risk Advisory Committee, which was created to mitigate the economic risks posed by climate change. The Secretary's warning echoed concerns from other officials in the Biden administration about the impact of carbon emissions on the economy.
The Climate-Related Financial Risk Advisory Committee included Catherine Ansell, the executive director of climate risk at JPMorgan Chase, and Cecilia Martinez, the principal advisor for resilience and communities at the Bezos Earth Fund, as well as several academics, the Daily Wire reported.
"Increasingly frequent and severe natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system," Yellen stated.
She also noted that a "delayed and disorderly transition to a net-zero economy can lead to shocks to the financial system as well. These impacts are not hypothetical. They are already playing out.”
Yellen cited examples of recent wildfires and storms in California, Florida, and Louisiana as evidence that climate change is already causing economic damage. Her remarks run contrary to the scientific understanding of such events, as individual events have no correlation with climate change, which is understood to be happening on a macro scale.
"Taking climate change into account is prudent risk management," Yellen said. "Our work builds on the scientific consensus regarding the projected effects of climate change and is based on a widely accepted understanding of how the financial system works.”
Yellen’s remarks come in the wake of the Labor Department's introduction of a final rule allowing retirement fiduciaries to consider "the economic effects of climate change and other ESG considerations" if they are relevant to a risk-and-return analysis.
The new rule, which reverses a prohibition created under former President Donald Trump, aims to "safeguard the financial security of America's families, businesses and workers from climate-related financial risk that may threaten the life savings and pensions of America's workers and families.”
Republican members of the House and Senate, as well as some Democrats, recently overturned the final rule. However, President Joe Biden is expected to veto the resolution.