Rep. Andy Barr, a Kentucky Republican, is determined to stop efforts by the Biden administration and big banks and asset managers to incorporate climate change risk into their financial decisions.
Barr, the top Republican on the House Financial Services oversight subcommittee, sees those efforts as politically motivated attempts to choke off capital to the fossil fuel industry, including the coal industry dominant in his state. And as the Biden administration gears up to work on climate finance regulations, including requiring public companies to disclose their greenhouse gas emissions, Barr sees room for GOP lawmakers to go on the offensive.
That would include legislation to prevent banks and asset managers, increasingly making public climate commitments, from dropping fossil fuel clients.
“We ought to defend shareholders against asset managers and directors and officers of public corporations that misallocate resources in order to fulfill some kind of political errand as opposed to doing their job,” Barr told the Washington Examiner in a recent interview.
Barr said he is working on legislation “to hold banks accountable to make sure that they’re not discriminating against perfectly legally operating businesses that are otherwise creditworthy.” He praised efforts by the Office of the Comptroller of the Currency during the Trump administration to bar big U.S. banks from restricting access to specific industries from lending and other services.
The Trump administration issued that action, known as the “fair access” rule, mainly in response to GOP lawmakers’ outcries that big U.S. banks were refusing to invest in fossil energy projects, including in new coal mining or oil and gas drilling in the Arctic.
Biden’s team had already put that rule, which wasn’t published before President Donald Trump left office, on hold and is likely to scrap it.
Barr suggested that the Trump administration’s rule should be codified into law, and he’s not the only Republican with that goal. More than half of the Senate’s Republicans, led by North Dakota’s Kevin Cramer, introduced legislation on March 3 to do so. Their bill also includes additional penalties to big banks that refuse services to businesses or people based on anything other than impartial, individual risk-based analysis.
As Republican opposition grows, so does action from federal financial agencies on climate change.
In recent months, both the Treasury Department and the Federal Reserve have established climate hubs and hired senior-level staff to oversee work assessing the risks climate change poses to financial security.
Late last year, the Fed joined a global network of central banks focused on managing financial risks from climate change and boosting capital for clean energy, the Network for Greening the Financial System. The Fed also included a discussion of climate change for the first time in its latest semiannual report on threats to financial stability.
The Securities and Exchange Commission, too, is sharpening its focus on climate risk disclosure, creating a new oversight task force on the issue on March 4.
SEC acting Chairwoman Allison Herren Lee has recently expressed support for requiring companies to disclose their greenhouse gas emissions and the risks their business faces from climate change, including policies to curb emissions. Gary Gensler, President Biden’s nominee for a seat on the SEC, made similar statements during a recent nomination hearing.
Barr doesn’t think financial regulators should be considering climate change at all. He has led efforts by House Republicans to scrutinize the Fed’s work on climate risk, wary of any potential attempts to incorporate what he sees as “speculative” climate scenarios into stress testing that examines how financial institutions would react to economic shocks.
“If the Biden administration was being honest with Congress and the American people, this is really not about managing climate risk. It’s not about managing financial stress,” Barr said. “It’s about causing financial stress to fossil energy businesses.”
Barr also suggested that climate targets announced by big U.S. banks to strive for net-zero emissions in their investment portfolios, including just this month by Citigroup and Goldman Sachs, are politically motivated, as those companies are under pressure by climate activists.
Environmental and sustainable investment groups, however, say banks’ climate plans are motivated purely by risk, not politics.
An October report from the sustainable investment group Ceres found more than half of the hundreds of billions of major U.S. banks’ syndicated lending portfolio is at risk from policies to curb emissions in line with global climate targets.
Giving higher-risk loans a higher reserve margin is “simple risk management. The banks do that every day. They make judgments of customers looking at those risks,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets.
He added that transparent fossil fuel-intensive investments face a higher risk, especially given that policies to curb emissions such as a carbon price would significantly affect those transactions.
The Fed’s bigger question will be how quickly to move from merely testing climate risk scenarios to bringing consequences on financial institutions to mitigate that risk, said Brian O’Hanlon, executive director of RMI’s Center for Climate-Aligned Finance.
“It’s one thing for the Fed to ask a bank to increase its reserve against climate risks,” O’Hanlon said, suggesting it would be “hard to fault” the Fed for that action. “It’s another thing for the Fed to then dictate something about a particular sector.”
The latter step is what worries Barr the most. He said he doesn’t have a problem with incorporating changing weather patterns into underwriting for insurance policies or even certain investors allocating capital to sustainable funds or companies that have lower carbon footprints.
The issue, Barr added, is when financial institutions “disregard their fiduciary duty to maximize returns” for political reasons by, for example, foreclosing opportunities to invest in fossil fuel companies.
If banks “discriminate against” energy firms or are pressured to do so by federal regulators, “the result will be increased energy costs for consumers, [and] the result will be potentially undermining the reliability of our electricity grid like we saw in Texas,” Barr said, referring to the rare cold snap that left millions of people without power last month.
