NEW YORK (Reuters Breakingviews) - Another report on the risks of climate change ought to be unnecessary as wildfires rage across America’s Pacific states. But that’s what appeared on Wednesday at the behest of the Commodity Futures Trading Commission. The document’s main strength is its obviousness.
What makes the report, entitled “Managing climate risk in the U.S. financial system,” stand out is that it is not trying to make scientific revelations or present more big, scary numbers. Instead, it rehearses the dangers that financial markets and participants face, putting them in language that Wall Street understands. That’s no surprise: The chairman of the CFTC subcommittee behind the paper is Bob Litterman, a former partner and risk manager at Goldman Sachs who is now chairman of the risk committee at Kepos Capital.
A good number of the report’s 53 recommendations also look familiar. They have been suggested or adopted in Europe and elsewhere. They include setting a carbon price and joining various cross-border groups like the Network for Greening the Financial System, which includes virtually all the world’s major central banks except the Federal Reserve. Also on the list is a call for mandatory climate-risk disclosures by companies, as well as integrating relevant analysis into regulatory work and even U.S. fiscal policy.
The CFTC report received unanimous approval from its 34-member subcommittee, including agriculture giants Cargill and Bunge, BP and ConocoPhillips representing Big Oil, as well as Wall Street giants Citigroup and JPMorgan. That’s starting to get significant players on the same page.
Initiatives of the kind proposed can, however, only be really useful if the underlying data points are robust and standardized. That’s an issue the report addresses at length, and one that has yet to be solved anywhere.
Litterman and some of his subcommittee colleagues are already working on it. Last week they unveiled an open-source climate data and analytics repository. It’s administered by nonprofit OS-Climate – whose boss Truman Semans also served on the CFTC group – under the newly formed LF Climate Finance Foundation.
There are some powerful backers, too: Allianz, Amazon.com, Microsoft, S&P Global and the Linux Foundation are behind the project. Soon virtually everyone but the U.S. federal government will be pulling in the same direction.
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