These Climate Policy Rollbacks Just Made Our Financial Future a Lot Riskier
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Remember the board game Risk? I used to play it with a neighbor who always moved most of his armies to one spot on the world map to project overwhelming force, only to lose the battalions he left exposed. The strategy of protecting your positions was lost on him—he thought he could win through sheer intimidation.
Two recent events show that President Trump is falling prey to a similar weakness. Instead of addressing the many ways climate change threatens the country’s financial stability, his administration is pulling back safeguards in order to reward his Big Oil donors.
On March 28, the US Securities and Exchange Commission (SEC)—an independent federal agency that protects investors by watching Wall Street—abandoned a rule it passed just last year requiring companies to examine how climate change impacts their operations and disclose their findings. The rule received overwhelming support from investors, who said they needed such information to assess risks to companies’ business models.
Three days later, the Office of the Comptroller of the Currency (OCC), one of the three independent agencies responsible for regulating banks, withdrew from a collaboration among the agencies to create guidelines on climate-related financial risk. The guidelines, issued in October 2023, would help banks with more than $100 billion in assets manage the ways in which climate change affects bonds, mortgages, and other financial products. Both the rule and guidance were significantly weakened by corporate lobbying but still represented an acknowledgement of the financial threat climate change poses.
The SEC rule and OCC principles grew from a longstanding demand by investors that was accelerated by a Biden Administration executive order directing regulators to assess the US financial system’s exposure to risks resulting from climate change. Trump revoked that order on his first day in office, along with several others related to climate change, public health, and the environment. He would later issue another order stripping away power from independent agencies like the SEC and OCC, both of which were established to make sure companies and banks don’t take too much risk with the public’s money. Both agencies are currently led by acting officials appointed by Trump.
The rollbacks didn’t come out of left field.—they’re a return on the fossil fuel industry’s major investment in Trump’s reelection campaign. The SEC rule and Biden executive order were explicitly named as targets for elimination in a 2024 briefing book for the board of the American Exploration and Production Council, an oil and gas trade association representing the country’s largest oil and gas companies. Trump’s executive orders also advance industry interests by making it easier to increase fossil fuel production while blocking clean energy development.
The fossil fuel industry has aggressively fought efforts to track and regulate climate-related financial risk. Industry representatives such as the American Petroleum Institute and U.S. Chamber of Commerce tried to stop the SEC rule with lawsuits, which are now combined into a single suit currently before an appeals court in Missouri (the SEC’s recent move withdrew agency defense of the rule, but state attorneys general continue to defend it). One of the plaintiffs in the lawsuits against the SEC rule is Liberty Energy, the company founded by Chris Wright, who Trump appointed secretary of the Department of Energy. Last year, ExxonMobil filed a lawsuit against investors pressing the company for increased disclosures.
What does climate-related financial risk actually mean? Though the answer might seem implicit, it’s helpful to remember that banks, investment funds, insurance companies, and other financial industry players are in the business of assessing risk. The financial industry employs legions of analysts to crunch numbers that will hopefully prevent them from losing money. If you’ve ever taken out a mortgage or other type of loan, you know how much work is required to prove that lending to you is a safe bet.
Climate change poses what risk experts call “systemic risk,” meaning it affects so many parts of the financial system that any negative event could set off a cascading series of crises, thereby destabilizing the entire system. Mark Carney, a former governor of the Bank of England who was recently elected Canadian prime minister, laid out three principal types of risk that climate change poses to financial stability in a 2015 speech to insurance executives.
The first is physical risk, meaning devaluation of physical assets like buildings or oil rigs due to climate-related hazards like hurricanes or wildfires. The second is liability risk, also called legal or litigation risk, meaning losses from legal action by parties harmed by climate change who seek compensation. The third is transition risk, or losses to fossil fuel-intensive industries resulting from the world’s transition to renewable energy sources. These can manifest as decreased demand for products like gasoline, or policy changes that limit the amount of carbon emissions a company can emit, to give just two examples.
As some of the world’s highest emitters of the carbon emissions that cause climate change, fossil fuel companies face heightened levels of these risks compared to other industries. Oil and gas companies are particularly vulnerable to physical risks to infrastructure located in extreme weather zones like coastlines or oceans; transition risks related to falling demand for their products; and liability risk. Several dozen lawsuits against fossil fuel corporations have been filed in the United States alone by states, counties, cities, and tribes seeking accountability for fraud, climate damages, or racketeering. While these cases do not seek to regulate emissions directly, they represent a significant financial and reputational threat through potential judgments, discovery of internal documents, and the broader scrutiny of industry practices.
In his 2015 speech, Carney said risk “will only increase as the science and evidence of climate change hardens.” Ten years later, that hard evidence has continued to mount. A well-established field known as attribution science is strengthening evidence of climate change-related risk to companies, investors, communities, and the economy. Attribution science can explain how climate change makes a heatwave hotter or a hurricane-related downpour more intense. This kind of event attribution helps assess changing risks to assets, infrastructure, and insurance.
Another branch of attribution science focuses on emissions sources, quantifying how emissions from specific companies contribute to global warming and related impacts over time.
A new UCS study, building on a robust body of UCS-led research, shows that nearly half of the increase in present-day temperature and one-third of present-day sea level rise can be traced to emissions from just 122 fossil fuel producers and cement manufacturers.
Think of all the damage wrought by rising seas, warming oceans, and hurricanes, and it becomes clear why so many are calling for greater accountability from oil and gas companies—much like the public reckoning that followed with the tobacco and asbestos industries.
These political shenanigans are just attempts to deny a reality that Wall Street already knows: Climate risk is financial risk. Just this year, banks and insurance companies released a slew of reports chronicling how climate change will impact the financial world. For real-time evidence, investors need look no further than the current insurance crisis. As my colleague Rachel Cleetus recently wrote, this crisis “was entirely foreseeable, and largely preventable…climate scientists have been sounding the alarm for decades, and yet the market and policymakers have reacted with short-term strategies because those are the timeframes for determining shareholder value, profits and elections.”
Trump’s rollbacks reflect more of this cynical, short-term thinking. But companies across industries must look beyond politics and face the reality of climate-related risk disclosure, both from within the US (rules in states including California) and abroad (regulations in Japan and the EU).
The key to winning the game Risk is fortifying your positions against all attackers. But where a board game depends a good deal on a roll of the dice, we can and must take charge of our future by accounting for the risks we face. By removing mechanisms to hold companies accountable, the Trump administration is playing political games with our financial future as well as the planet’s.