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Blog Post | February 16, 2021

How A Little-Known Treasury Position Could Move Mountains For Climate Action

2020 Election/TransitionClimateFinancial Regulation
How A Little-Known Treasury Position Could Move Mountains For Climate Action

President Biden has promised to take a “whole-of-government” approach to tackling the climate crisis, and so far his appointees appear to be following suit. The National Climate Task Force met for the first time in a crowded zoom room last week, and Treasury Secretary Janet Yellen and International Climate Envoy John Kerry met earlier this month to discuss their “climate finance plan” to shift capital towards investments in line with a low-carbon economy.

This is exactly what we should be seeing in the first month of a 21st-century administration. We have previously written about the power the Treasury Department holds to curb climate change, and it is encouraging to see that Yellen appears to recognize that responsibility. 

Perhaps most important of those responsibilities is Yellen’s position as the Chairperson on the Financial Stability Oversight Council (FSOC), the group made up of ten voting and five non-voting members from various federal- and state-level financial regulatory bodies.

Established in Title I of the Dodd-Frank Act, FSOC is primarily known as a safeguard against financial practices that could destabilize the entire global economy, like those we saw during the Great Recession. But it also has broad leeway to interpret what such a “systemic risk” could be, and what is more destabilizing to the world economy than a warming planet?

FSOC thus has critical power and therefore a responsibility to address the climate emergency. At minimum, it can implement regulations that ensure financial institutions incorporate climate risk analysis in their investments and provide information needed for financial regulators to justify running climate stress tests or increase capital requirements to account for climate damage. It could even give approval for the Federal Reserve to require that financial institutions divest from fossil fuel investments if such holdings are deemed financially risky.

Given FSOC’s massive power to stop the flow of money to climate-destroying industries, it’s worth noting one Treasury position with the ability to push FSOC towards climate action perhaps more than anyone else. 

Within the Treasury’s Office of Domestic Finance lies the Office of Financial Institutions, and within that office exists the Office of the Financial Stability Oversight Council. There, a Deputy Assistant Secretary (DAS) with enormous agenda-setting power sits. Their role is technically to “[assist] in coordinating the work of the Council among its members and member agencies.” The FSOC DAS is also responsible for producing analysis, calling meetings, and preparing meeting agendas for all FSOC committees except for the Data Committee. In other words, this DAS is the Treasury Secretary’s dedicated full-time aide for all of their FSOC-related duties.

The FSOC DAS is uniquely situated to advance climate action in a number of ways. First, unlike Deputy Assistant Secretaries in other offices, the FSOC DAS reports directly to the Undersecretary (in this case, for Domestic Finance) and also serves as the main adviser to the Treasury Secretary in their capacity as FSOC Chair. Because the Treasury Secretary has multiple competing priorities at any one time, FSOC being only one of them, the Secretary relies upon assistance from the FSOC DAS in creating the agenda and moving the workstream forward.

The FSOC DAS can also direct the Treasury’s Office of Financial Research to do particular work. In the case of climate, this could mean requesting research or reports be produced on the financial risks of climate change, the costs saved from climate action, the most effective regulations or interventions for advancing specific outcomes, or analysis on how financial institutions are contributing to the climate crisis. 

The list continues. The DAS, because they have a direct line to the Chair of FSOC, can pressure FSOC on its recommendations to member agencies. Again, this is relevant for climate action because FSOC could recommend, for instance, that member agencies require climate risk disclosure to investors or divest their finances from both environmentally and financially unsustainable sources. 

The FSOC DAS is also responsible for moving rules, bylaws, and other procedures along for FSOC’s general workflow. If that kind of procedural power sounds dull, consider how Mitch McConnell has dominated the Senate simply through effective control of the floor calendar. If the DAS prioritizes a given agenda item within FSOC, it can force action on, for example, FSOC’s ability to designate non-bank institutions as systemically important and thus subject to their regulation. The world’s largest investor in fossil fuels, BlackRock, is one of these non-bank institutions. Ending this financial titan’s fly-under-the-radar approach to oversight will be an enormous public good, with climate change being only the most recognizable case study in why. 

While the intricacies of procedural work are important, perhaps the most meaningful aspect of this role is the intangible ability to frame issues, decide the universe of the possible, and push courses of action they deem necessary. The person in this role could be either a gatekeeper or a leader in climate action. We urge the latter.

The FSOC DAS position does not require Senate confirmation but otherwise follows the normal appointment process. Therefore, it is of the utmost importance that President Biden, Secretary Yellen, and the agency review team immediately put forward a climate leader as Deputy Assistant Secretary in the Office of FSOC.

The right person for this position will be a bold climate leader committed to utilizing their powers creatively to pressure FSOC to divest the U.S. financial system from fossil fuel and deforestation activities. This person should understand their position as beholden to the people whose lives depend on immediate climate action (yes, everyone), not corporations whose profits depend on loose regulations and empty promises. 

A corporate takeover of the executive branch depends on positions like this one being rarely discussed, cloaked in complexity, and misunderstood by regular people. We cannot allow corporate America to exploit this opacity to take over the Biden administration. The public is wholeheartedly behind immediate climate action across the whole of government — it is positions like the FSOC DAS where Biden’s team will prove whether his commitments as such were just empty words.

2020 Election/TransitionClimateFinancial Regulation

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