Climate change activists were dealt a blow on Tuesday when Sarah Bloom Raskin withdrew from consideration by the Senate for an appointment as the Federal Reserve’s top Wall Street watchdog.
“The fossil fuel industry used the stranglehold that it has on our political system in order to smear her and block her nomination, because of her views on climate-related risks, specifically,” Sierra Club Fossil-Free Finance campaign representative Adele Shraiman told Yahoo News.
But Shraiman and others predict that the Fed and other financial regulators in the United States and elsewhere will still start regulating to protect the U.S. financial system from the risks that climate change poses.
“There’s likely going to be forward movement in addressing climate risk,” Shraiman said. “[Fed Chair Jerome] Powell has made it clear that addressing climate risk is one of the priorities for the Fed moving forward.”
Raskin was an advocate of examining the systemic risks to the U.S. financial system posed by climate change. For example, banks face additional risks when they lend to areas prone to increasingly destructive extreme weather events or when they are heavily invested in fossil fuel infrastructure that may become unusable when coal, oil and gas are supplanted by cleaner sources of energy. Climate activists call for the Fed to impose rules on lending institutions that require disclosure of their climate risks, and for the Fed to analyze whether financial institutions will be able to withstand climate change.
Raskin had previously received unanimous support both when confirmed to serve on the Fed’s board and in the Treasury Department under former President Barack Obama. But her nomination by President Biden to be the Fed’s vice chair for supervision was sunk by opposition from Republicans and Sen. Joe Manchin, D-W.Va. Manchin’s opposition, announced on Monday, was the death knell for Raskin’s prospects in an evenly divided Senate. He worried that Raskin’s preferred policies would choke off access to capital for fossil fuel companies that want to build new infrastructure to increase production.
Raskin “failed to satisfactorily address my concerns about the critical importance of financing an all-of-the-above energy policy to meet our nation’s critical energy needs,” Manchin said in a statement on Monday.
Environmental groups had praised the nomination. “There’s no better pick for this critical role overseeing Wall Street than Sarah Bloom Raskin, who has made it clear that she understands the threat climate change poses to our financial system and knows how to take action to address it,” Shraiman of the Sierra Club said in a statement in January.
Now they are bemoaning her defeat.
“It speaks to how captive our system is, and certain members are, to the fossil fuel industry,” Jamal Raad, executive director of Evergreen Action, told Yahoo News. “I do think that without her expertise it’s going to be harder to do the work they need to do.”
But they insist that, despite losing the battle, they are still winning the war over regulation of climate risk. “We’re already behind the rest of the world and the European Central Bank on some common-sense steps, and that’s where the future is headed,” Raad said.
In January, the European Central Bank launched a climate risk stress test that will examine banks’ preparation for financial and economic shocks caused by climate change. The Bank of England did the same last June.
Manchin is the largest recipient in Congress of campaign donations from fossil fuel companies. Asked for a response to criticism from climate activists, his office pointed to his statement from Monday. The offices of other senators who voiced influential opposition to Raskin, including Susan Collins, R-Maine, and Lisa Murkowski, R-Alaska, did not respond to a request for comment, nor did the American Petroleum Institute, which represents oil and gas companies.
Activists contend that, despite the setback, federal scrutiny of the risks that banks assume when lending to fossil fuel companies is still coming. The Securities and Exchange Commission reportedly plans to release a new rule next Monday that will require publicly traded companies to disclose their greenhouse gas emissions and their climate risks.
“Lael Brainard holds the same views as Sarah Bloom Raskin and others on the need to take common-sense steps to rein in the risk of the climate crisis to our financial system,” Raad said, referring to a member of the Federal Reserve board of governors who is likely to be confirmed as Powell’s vice chair. “There’s no hiding the fact that climate is an emerging and present risk to our financial system.”
“Bloom Raskin’s views on climate are actually very standard for financial regulators,” Shraiman said. “She’s well within the mainstream of banking regulators, including Jerome Powell himself, in acknowledging the reality of climate change and the importance of addressing all systemic risks to financial stability, including the risks posed by climate change.”
Experts say it’s unclear who will be nominated in Raskin’s stead.
“I don’t know what’s going to happen with the seat,” Jeremy Kress, a professor of business law at the University of Michigan, told Yahoo News. “I can tell you what I hope happens, which is that the White House will nominate somebody who shares Sarah Bloom Raskin’s values.”
Kress noted that opposition to Raskin was bolstered by a New York Times op-ed she wrote in May 2020 arguing that federal pandemic-relief loans should be directed to expanding clean energy supply rather than supporting fossil fuel companies. Kress distinguished that position from the more widely shared view among regulators that the Fed “use [its] financial regulatory powers to protect the banking system from climate-related financial risks.”
“I would expect the Fed, with or without a vice chair for supervision, to take some steps to address those risks,” said Kress. “However, I think it’s going to take a confirmed vice chair for supervision who makes this issue a priority to really move the ball forward.”
Whether someone who prioritizes climate risk can get confirmed to that position is unclear, but advocates say the direction is inevitable, given the growing certainty about the threat of climate change as well as the Fed’s mandate to mitigate risks to the financial sector.
“This is the last gasp of an industry that desperately wants regulators to bury their heads in the sand, but the path forward is clear,” Raad said.