For companies to address climate change, an 'action plan' is needed

Yahoo Finance's Brian Cheung spoke to Sergey Paltsev of MIT's Joint Program on Science and Policy of Global Change about how companies can move to climate-friendly operations.

Video Transcript

BRIAN CHEUNG: Now, can we zone in a little bit more on the financial side of things? We know that banks and other types of financial services companies are really kind of the heartbeat of where the financing goes. And we know that with the shift to net zero that ESG has really emphasized the need to make this type of shift.

But in the interim, as you mentioned, that transition risk has been flagged by financial regulators, at least here in the United States. There was a pretty meaty report from the Financial Stability Oversight Council. It's kind of the Justice League, if you will, of financial regulators that are trying to figure out what the best way to assess these climate-related risks are.

The report details things like having increased data collection and more regulatory disclosures from the private sector with regards to these things. Is that going far enough? Because there are some progressive groups that are saying, honestly, maybe regulators should be doing more to ensure that transition happens.

SERGEY PALTSEV: Indeed. As you have correctly mentioned, it's not just the financial departments and financial regulators, financial institutions. Similarly, probably you're familiar with the reports from the defense, the reports from intelligence which also state the same urgency that we need to make sure that we are taking those risks into account.

And indeed, that report on climate-related financial risks, which is led by the Treasury, but also has many other agencies on board, so Fed Security and Exchange Commission and many other agencies, is paving the very important path where we need to go. It's important to note that that report is not exhaustive.

And that's not the final word. But that brings a lot of very concrete recommendations. So that report has, if I'm not mistaken, about 40 different recommendations, which, broadly, are helping the institutions how to find the path in order to make sure that those financial risks are taken into their account.

And we at MIT are working with several financial institutions. So for example, we have a project with Bank of Canada where we are doing exactly that, where we are trying to use scenario analysis to quantify the risks. And I can tell you and of my own view, when we are going to be serious, well, when these companies would be willing to make sure that they have enough resources to the standard risk to assess that risk. And when they are going to put a lot of resources to evaluate that, I would see that, yes, indeed, we are serious. It's not just a cheap talk, but there is action as well. And that's what is needed, not just the pledges, but the action plan.

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