Emerging Opportunities to Solve Climate Change through Sustainable Finance

Last fall, record-setting fires here in California provided a small glimpse of what climate change has in store for us. Hundreds of thousands evacuated. Smoke darkened skies glowed an eerie orange for days. Health experts recommended staying indoors for weeks to avoid dangerously polluted air; but, of course, not everyone could afford that luxury.

A Stanford University analysis estimated that while more than two dozen people were killed directly by the fires, up to 3,000 more died prematurely from smoke exposure. That is comparable to the number of deaths from COVID-19 in San Francisco, San Mateo and Santa Clara counties as of mid-April. And our local experience was only the tip of the proverbial iceberg of climate change-induced suffering around the world; suffering that will accelerate if we don’t urgently cut pollution.

Fortunately, President Biden is offering crucial climate leadership just in the nick of time. He has committed to prioritize climate action, together with economic recovery and racial justice. And he has appointed talented leaders across numerous federal agencies, embracing a whole-of-government approach to tackling climate change that could yield rapid progress.

One of the many exciting new opportunities for progress is on sustainable finance. The global energy industries that are responsible for the bulk of climate change are powered by approximately $2 trillion in capital investments each year. The problem is that only about one-third of that capital investment goes to climate solutions, while the rest goes to fossil fuel industries that are digging us deeper and deeper into the climate crisis.

But investors and financial system regulators are beginning to recognize the huge financial risks posed by both climate change impacts and carbon-intensive business models. Investors representing more than $50 trillion in assets, including industry giants like BlackRock, have come together to ask companies to disclose and manage their climate risks.

Financial system regulators are poised to help. Last year, the Commodity Futures Trading Commission released a landmark report emphasizing the risk of climate change to the financial sector, and recommending actions by numerous U.S. regulators to understand and manage the risks. President Biden is now appointing regulators who are motivated to address climate risk, for example, at Treasury, the Securities and Exchange Commission, and the Federal Reserve.

Although these U.S. regulators are playing a bit of catch-up to their counterparts around the world, that means they can learn from efforts in the U.K., Europe and elsewhere to further speed domestic progress.

Philanthropy can also help advance these efforts by supporting organizations such as Ceres, Center for American Progress, Environmental Defense Fund, and ClimateWorks Foundation that provide policy analysis, research, communications, advocacy, and support for international cooperation.

Although climate risk may be new to the financial system, risk and reward is the language of the system. The time will soon be past when companies could simply ignore climate risks while claiming short-term rewards. The sooner climate risk is embedded into financial analysis, the sooner private capital investments will shift away from fossil fuels that are digging us deeper into this crisis and towards climate solutions that light our path forward.

We have seen the destruction that climate change is bringing. We know how devastating the risks are. It’s time for investments to match reality. There is no time to waste.