ESG Challenge: Anne Perrault, Public Citizen Interview — Transcript

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1. 0:05hi an thank you so much for taking the
2. 0:07time to connect with me today um could
3. 0:10you please introduce yourself and your
4. 0:12work in climate Finance policy at public
5. 0:14citizen sure hi it's a pleasure to be
6. 0:17here um an pero I uh work primarily on
7. 0:21Bank regulation and um Financial
8. 0:25stability issues at public citizen uh
9. 0:28which is based primarily Washington DC
10. 0:30but office is in Austin Texas as
11. 0:35well great climate change poses physical
12. 0:39risks and transition risks to individual
13. 0:42institutions how do you articulate the
14. 0:44systemic risks of climate change to the
15. 0:46broader Financial system in the US yeah
16. 0:50so that's received a lot more attention
17. 0:52in the past couple of years and the um
18. 0:56Financial stability oversight Council
19. 0:59fso which which is chaired by the US
20. 1:01Treasury um produced in 2022 and 2023
21. 1:06well they always produce annual reports
22. 1:08but the two they produced in those two
23. 1:10years did a pretty good job of
24. 1:12describing oneway climate change is
25. 1:17creating a possible Financial stability
26. 1:20risks and what's described in those
27. 1:22reports is this um what we're seeing now
28. 1:25in beginning with the insurance Market
29. 1:28um so it's the whole
30. 1:30um you know when insurers begin to leave
31. 1:34risks flow uh it's called a flow of risk
32. 1:37to Consumers when consumers um when it
33. 1:41exceeds consumer capacity to pay say
34. 1:44mortgage loans um you have lenders on
35. 1:47the hook both Bank lenders and non-bank
36. 1:50lenders and but also municipalities and
37. 1:54we're seeing that with Helen the
38. 1:55hurricane here we can only imagine um
39. 1:59what the municip alties that are that
40. 2:01will need to deal with the aftermath of
41. 2:03of hen will need to deal with when it
42. 2:05when it comes to paying their debt and
43. 2:07their municipal bonds and so um in in
44. 2:11fact there have been recent Studies by
45. 2:13the um uh inter um Continental exchange
46. 2:16that
47. 2:17approximately four trillion I think is
48. 2:20the correct number in municipal bonds um
49. 2:23are issued from areas that face
50. 2:26significant physical risks so um
51. 2:30so it's municipalities as well but then
52. 2:33we also have a lot of uh mortgage
53. 2:36Originators of course selling those
54. 2:39those mortgages to government sponsored
55. 2:41Enterprises Fanny and Freddy sounds a
56. 2:43lot like 2008 um and a lot of those uh
57. 2:48uh mortgages uh the risks climate risks
58. 2:50associated with them aren't clear and of
59. 2:53course they're being securitized and and
60. 2:56investors are purchasing them and we see
61. 2:58the 2008 finan financial crisis and uh
62. 3:01an analogy here so that's one way
63. 3:05there's a financial stability risk
64. 3:07through this loss of insurance and and
65. 3:10heightened physical um physical impacts
66. 3:14that's one um others that we're thinking
67. 3:18about and working on are um heightened
68. 3:21inequality and of course it it relates
69. 3:24to to the physical impacts um to what
70. 3:27extent is heightened inequality that's
71. 3:29caused for example by insurers departing
72. 3:32from um areas that are
73. 3:35disproportionately you know um home to
74. 3:38um low and moderate income communities
75. 3:40what's going to happen uh to to
76. 3:43inequality there so we're thinking that
77. 3:45heightened inequality could be a concern
78. 3:48and then of course just impacts to the E
79. 3:50economy we're seeing a greater attention
80. 3:53to how impacts to supply chains um might
81. 3:58uh you know down Road pose a threat to
82. 4:01financial stability um and then of
83. 4:04course there's the one that Financial
84. 4:06Regulators have already probably given
85. 4:09the most attention to which is um just
86. 4:12the risks of material distress or
87. 4:15failure of the largest financial
88. 4:18institutions the largest banks for
89. 4:20example and and I um we can talk more
90. 4:24about that but that's that's really
91. 4:26where most of reg most of the regulator
92. 4:28attention has been Focus today because
93. 4:31it's what they know um and climate risk
94. 4:34is is a Rel is kind of a novel risk in
95. 4:37many ways so so yeah that's how I'm
96. 4:40seeing Financial stability risks from
97. 4:43climate change
98. 4:46multifaceted yeah the public citizen
99. 4:50called for a climate road map for US
100. 4:52Financial regulation at the beginning of
101. 4:54the Biden Administration um which called
102. 4:57for reforms such as expanding disclosure
103. 4:59requirements expanded fiduciary rights
104. 5:02to address climate risks actively
105. 5:04regulating climate um risks opposed to
106. 5:08the financial system and supporting
107. 5:10research to better quantify climate
108. 5:12risks uh at now at the end of Biden's
109. 5:14term what gaps remain and what which
110. 5:17ones are the most urgent to address yeah
111. 5:20so as I mentioned a second ago I think
112. 5:24Regulators primarily Bank Regulators
113. 5:27have done a decent job of responding
114. 5:30to I say decent but you know relative
115. 5:35um Le let's put it this way of of taking
116. 5:40steps to deal with risks that the
117. 5:43largest banks face so they adopted
118. 5:48supervisory guidance climate related um
119. 5:51for to deal with climate related
120. 5:53Financial Risk that Bank of America
121. 5:54faces hate Bank of America you need to
122. 5:57think about climate risk you need to
123. 5:58think about ways you to respond to it
124. 6:01that that sort of
125. 6:03thing what Regulators haven't done as
126. 6:06much um well really at all is to think
127. 6:10about ways those same institutions are
128. 6:14contributing to risk to the system um
129. 6:18through their financed emissions or
130. 6:20facilitated emissions so um you know to
131. 6:25what extent will the flooding um and and
132. 6:29and North Carolina impact Bank of
133. 6:33America relative to a whole range of of
134. 6:37financial actors as I mentioned earlier
135. 6:41municipalities you know other Financial
136. 6:43actors that are more geographically
137. 6:47rooted than say Bank of America that
138. 6:50have greater Financial capacity than say
139. 6:53Bank of America to respond to those
140. 6:55risks um it's uh those are the sorts of
141. 6:59questions and and issues we've been
142. 7:01pushing Regulators to consider and
143. 7:05respond to um in the US and I'll say on
144. 7:09that point that it's really interesting
145. 7:11because in Europe um the European
146. 7:13Central Bank has done a a much better
147. 7:15job of of considering this issue of not
148. 7:20just
149. 7:21um risk to the largest banks but also
150. 7:25risk that those Banks and other
151. 7:27financial institutions are creating for
152. 7:30other Financial actors in our extremely
153. 7:33interconnected Financial system so
154. 7:37that's a a major shortcoming from from
155. 7:40my
156. 7:41perspective other shortcomings are on
157. 7:44their radar I think but they're still
158. 7:46not struggling with how to deal with
159. 7:48that and that of course is non-bank
160. 7:50lenders with other actors of Shadow and
161. 7:54you know the shadow banking system what
162. 7:56do you do with with asset managers you
163. 7:59know um private Equity um actors um even
164. 8:05insurers as as you might know insurers
165. 8:08are regulated primarily at the state
166. 8:10level not at the federal level and so
167. 8:13we've got this situation where um you
168. 8:16know Financial Regulators are even if
169. 8:19they're considering that um insure
170. 8:22departures and the insurance protection
171. 8:24Gap that's growing it's Financial
172. 8:27stability concern they're struggling to
173. 8:29figure what do we do about that you know
174. 8:31we've got some efforts by the National
175. 8:35Association of insurance Commissioners
176. 8:37um that are you know trying to secure
177. 8:40information about risks um to ensures
178. 8:44how much you know what other premiums
179. 8:47insurers are charging in various States
180. 8:49but we have a handful of states that
181. 8:51aren't participating so it's really a
182. 8:54struggle really a tough issue um and
183. 8:57then disclosure um is is a big concern
184. 9:00and you know the SEC under under Gary
185. 9:04Gensler has offered a proposal to um you
186. 9:08know disclose scope one two and three um
187. 9:12um emissions and and scope three has now
188. 9:15fallen off the radar um that's that's a
189. 9:19key a key concern um that's a key
190. 9:23shortcoming so uh we've got the state of
191. 9:27California still requiring it we're
192. 9:29hopeing that creates a lot of momentum
193. 9:32we we know that it covers a lot of the
194. 9:34actors that would have been covered
195. 9:36under SC the public citizen did a study
196. 9:40to to show the overlap um I don't have
197. 9:43the numbers in my head I I didn't do the
198. 9:44study but
199. 9:46um yeah those are some of the
200. 9:51shortcomings public citizen has also
201. 9:53supported the fossil free finance act
202. 9:55which includes Provisions to stop Banks
203. 9:57from lending to fossil fuel projects
204. 10:00I've heard two main arguments against
205. 10:01simply turning off the tap of
206. 10:03Investments to fossil fuel projects
207. 10:05first you risk driving them to less
208. 10:08reputable and transparent sources of
209. 10:10funding and second actively engaging
210. 10:13heavy emitters to decarbonize their
211. 10:14operations will ensure we reduce
212. 10:17emissions in the real economy not just
213. 10:18on the books of a given Bank how do you
214. 10:22respond to these
215. 10:23arguments yeah um well on the
216. 10:27first um you know
217. 10:30it's it's you you can't stop asking
218. 10:35actors that are creating risk that
219. 10:37others are assuming to you can't just
220. 10:40ignore what they're doing assuming that
221. 10:43those you know those risks will just
222. 10:45move somewhere else you you've got to
223. 10:47start
224. 10:48somewhere I'll also say that public
225. 10:50citizen
226. 10:51were pushing to to secure greater
227. 10:55attention to non-bank actors too um so
228. 10:58for example we just requested that
229. 11:02treasury um designate um AIG as a you
230. 11:06know significant um um a cppi
231. 11:10International International financial
232. 11:13institution um to require greater
233. 11:16Federal Reserve board over you know
234. 11:19supervision and regulation so we're well
235. 11:22aware that there are risks um and in the
236. 11:25shadow banking system that need to be
237. 11:28addressed and push for that um and your
238. 11:32second question again sorry the yeah the
239. 11:35second argument was um so fuss-free
240. 11:38Finance act actually wants to withdraw
241. 11:42funding or limit the amount of funding
242. 11:45that Banks can provide to these
243. 11:47institutions which is more of a
244. 11:49divestment argument as opposed to an
245. 11:51active engagement in decarbonization
246. 11:53argument so um what's how what do you
247. 11:57see is the benefit of the this active
248. 12:00divestment as opposed to uh the approach
249. 12:04that I've also heard articulated of
250. 12:07engaging with the heavy emitters to
251. 12:09reduce their their emissions in the real
252. 12:13economy yeah so a couple of things the
253. 12:16house fre Finance
254. 12:18Act is not calling for immediate
255. 12:22investment and that needs to be really
256. 12:24clear it is about taking a
257. 12:27responsible um
258. 12:30uh um approach um one over over years to
259. 12:35transitioning out of out of fossil
260. 12:37assets so
261. 12:39we're I I think we're I I know we're
262. 12:42very aware that u a quick departure is
263. 12:47not is not a prudent thing to do um that
264. 12:52said we waited so long to transition out
265. 12:56that now we've uh started to feel the
266. 12:59pain um and you know and we're seeing it
267. 13:02with this you know increased flooding
268. 13:04right now
269. 13:06um you know if we had started five to 10
270. 13:09years ago we we probably could you know
271. 13:12be making this transition a lot easier
272. 13:15than it than it is now at this point so
273. 13:19uh that's I guess that's one response
274. 13:22the other is
275. 13:24um it needs to be both I think it needs
276. 13:27to be um divestment it also o needs to
277. 13:29be Banks engaging with clients that said
278. 13:33um you know there's been real questions
279. 13:36important questions about the extent to
280. 13:38which banks truly are engaging with
281. 13:42clients to do this and um uh you know
282. 13:47what we're seeing and reading is that
283. 13:50you know Banks would like to suggest and
284. 13:53indicate that they are working closely
285. 13:56with clients to make this move to
286. 13:58transition but the evidence of that is
287. 14:00still pretty sparse and so yeah if you
288. 14:04know please engage with your clients um
289. 14:07but in the meantime we're also going to
290. 14:09push for banks to reduce their financing
291. 14:12of emissions because it it needs to
292. 14:16happen great um how have you seen
293. 14:20companies in general and in particular
294. 14:23financial institutions engaging on the
295. 14:26financial regulations that that you
296. 14:28support those gaps in the regulatory
297. 14:31landscape that you talked about earlier
298. 14:33and how influential is the corporate
299. 14:35voice in developing these policies yeah
300. 14:41um I I it's yeah it's very influential
301. 14:46it's it's um again I think about Banks
302. 14:50and it's we have some banks that we that
303. 14:54are value aligned I guess um Amalgamated
304. 14:58Bank comes to to mind um um and Banks
305. 15:02like Amalgamated that are doing what
306. 15:05they can to move the Needle and to
307. 15:08engage other Banks frankly um but there
308. 15:11aren't enough and so on a call recently
309. 15:16with um was uh about comments on a on a
310. 15:21on a global proposal to to to deal with
311. 15:24climate risk there were three of us from
312. 15:27um um non profit groups and 100 uh from
313. 15:32financial
314. 15:34institutions and the message in that um
315. 15:38and that convening was look we're big
316. 15:41financial
317. 15:44institutions we we've got these risks
318. 15:48covered um we don't think the transition
319. 15:51risks are that great for us and and the
320. 15:54implication there is we've got we we we
321. 15:57have these fossil assets
322. 15:59but we we can get rid of them before it
323. 16:01becomes a really big deal um so you
324. 16:04don't need to worry about us the largest
325. 16:06financial institutions and when it comes
326. 16:09to physical risks well we we we know how
327. 16:13to stop lending and financing in climate
328. 16:15vulnerable areas at least that's what
329. 16:17they were saying you know six months ago
330. 16:19on that call now that it's becoming more
331. 16:23obvious that there are
332. 16:25no perfectly safe areas when you think
333. 16:28about on Asheville for example that that
334. 16:31tune might change in other words maybe
335. 16:33larger banks will realize well wow we
336. 16:36thought we had investments in safe
337. 16:38places we may now need to rethink that
338. 16:41but
339. 16:43um but on this call we're the largest
340. 16:46financial institutions and their their
341. 16:49their plea was look you don't need to
342. 16:51regulate us anymore risks to us are
343. 16:54covered so Bank Regulators you've done
344. 16:58your job
345. 16:59we'll be safe we won't face material
346. 17:02distress the three of us on the call
347. 17:04that weren't you know financial
348. 17:06institution said wait you know you might
349. 17:10be um one though the risk you're
350. 17:15creating through your financing and
351. 17:17facilitating of emissions aren't going
352. 17:19away they're falling on other entities
353. 17:23they're falling on consumers they're
354. 17:24falling on communities and those are
355. 17:27things you need to pay attention to and
356. 17:30that frankly Regulators need to pay
357. 17:32attention to for all the reasons I
358. 17:33mentioned before heightened inequality
359. 17:35flow of risk all of that
360. 17:39um uh um but
361. 17:43two again thinking back to 2008 we could
362. 17:47have a financial crisis here and you
363. 17:50know all bets are off for even large
364. 17:53financial
365. 17:54institutions that are so heavily um
366. 17:57interconnected
367. 17:59um that you'll be okay so maybe maybe
368. 18:02risk you're you are facing individual
369. 18:05financial institutions right now direct
370. 18:08risk to you right now maybe you're right
371. 18:12you know even assuming you're right
372. 18:14about that um the risk that others are
373. 18:18assuming um uh the risks that um you
374. 18:21could face through a financial crisis
375. 18:24are other risks that you need to be
376. 18:26worried about that Regulators need to be
377. 18:28worried about so that's what I would say
378. 18:31in response to that
379. 18:34absolutely what are the primary
380. 18:36arguments that you hear against the
381. 18:39kinds of proposed Finance regulations
382. 18:41that you advocate for and how do you
383. 18:43address them I think you just mentioned
384. 18:45some of them banks have this under
385. 18:48control but what are the other ones that
386. 18:49you are
387. 18:51hearing yeah uh it's hard to
388. 18:55quantify um so the I the FED did a pilot
389. 19:01scenario analysis of I think it was the
390. 19:04six largest banks as these largest banks
391. 19:07to um walk through a few hypotheticals
392. 19:12what happens if a hurricane hits the the
393. 19:16Northeast Coast what would that do to
394. 19:18your
395. 19:19portfolio how would you handle that um
396. 19:22that was one of the hypotheticals and
397. 19:24then there were a few other other
398. 19:27factors Banks needed to to consider um
399. 19:30these six largest banks
400. 19:33um performed the exercise sent the
401. 19:36results to the FED actually One Bank um
402. 19:40we found a footnote that said one
403. 19:43couldn't secure all the data it needed
404. 19:45to do to do the exercise which was
405. 19:47really interesting because this is a
406. 19:49large large bank so the six largest
407. 19:52Banks sent in that data and um the FED
408. 19:57report said essentially we got a lot of
409. 19:59gaps here folks we've got a lot of um um
410. 20:03modeling um U um uncertainty um and we
411. 20:09need to do a lot of work to fill those
412. 20:12gaps and I I think this really
413. 20:15underscores a point we make a lot um
414. 20:18that I made earlier which is climate
415. 20:21risk isn't
416. 20:23your parents Financial Risk it's not
417. 20:26your grandparents Financial Risk it's it
418. 20:29is a Financial Risk but it's a different
419. 20:31kind of Financial Risk it's one rooted
420. 20:34and impacts to the environment and the
421. 20:37idea that we can somehow create this
422. 20:39really really deep distinction between
423. 20:42environmental health and financial
424. 20:44system Health you know this the climate
425. 20:47change impacts we seen just highlights
426. 20:50how untrue that is and so what it means
427. 20:55then is that the bank regulators and
428. 20:58other regul
429. 20:59need to think more broadly about
430. 21:02riskmanagement measures that need to be
431. 21:04pursued they also need to think about um
432. 21:07who are the important critical Financial
433. 21:11actors now um you could pretend that
434. 21:16municipalities for example weren't as
435. 21:18important Financial actors uh you know
436. 21:20five to 10 years ago they're
437. 21:22municipalities they're public entities
438. 21:24they're not part of our game um well you
439. 21:27know with um four trillion in municipal
440. 21:30bonds outstanding in climate vulnerable
441. 21:33areas they are part of your game and you
442. 21:35need to think about their well-being and
443. 21:37you need to think about the fact that
444. 21:40municipalities are assuming risk they
445. 21:42didn't create that didn't willingly
446. 21:43assume in some ways you know unlike the
447. 21:472008 financial crisis where a lot of
448. 21:49folks acted to assume those risks didn't
449. 21:52have all the information totally
450. 21:54understand that but in this situation
451. 21:56you've got you know the folks who who
452. 22:00have homes that were just washed away in
453. 22:02Asheville you know they didn't willingly
454. 22:05assume the risk that they are now facing
455. 22:08here um so Regulators need to need to
456. 22:13consider that as du the financial
457. 22:18institutions how has the anti-g backlash
458. 22:21affected your work and what has been the
459. 22:23effect on the broader regulatory
460. 22:26landscape so um um The anti-g Campaign
461. 22:34there's an entire group of Advocates who
462. 22:36are focusing on that and I'm I'm not one
463. 22:39of those um but of
464. 22:42course uh I'm following it from afar uh
465. 22:46because it's hugely important
466. 22:50um I it it of of course is having a
467. 22:54significant impact on the work we're
468. 22:55doing we're seeing regulators
469. 22:58Powell
470. 23:00um uh you know a few years ago was
471. 23:06less you know reticent to acknowledge
472. 23:10climate as a as a risk than he is today
473. 23:14partly I think because of the anti-g
474. 23:17backlash because of political concerns
475. 23:19related to that I think one of the
476. 23:22reasons for the big gap between what's
477. 23:25happening in Europe at the ECB for
478. 23:27example European Central Bank and what's
479. 23:29happening at the FED is partly a
480. 23:32function of the
481. 23:35anti-g uh campaign in the US that said I
482. 23:40think what started as sort of a a war is
483. 23:44is turning into more like a meow um
484. 23:48maybe that's wishful thinking I'll
485. 23:50acknowledge it might be wishful thinking
486. 23:51but the point here is we're seeing that
487. 23:54it's costing these states um who are are
488. 23:58so strongly pushing you know anti ESG
489. 24:03one of the best things
490. 24:04are campaign to respond to anti-g has
491. 24:08done is to put numbers on um the cost
492. 24:13that um the anti-g states or counties or
493. 24:17jurisdictions you know what what is
494. 24:20costing them to take that position given
495. 24:23the risk given the harms given the cost
496. 24:26that their consumers their community
497. 24:29their you know public entities are are
498. 24:32are facing so yeah it's it's been tough
499. 24:36and more to do more to
500. 24:40go is there anything else that you would
501. 24:42like to add or any other points you
502. 24:45would like to make before we
503. 24:48wrap
504. 24:51uh yeah I
505. 24:53think we're seeing greater interest in
506. 24:56this issue um
507. 25:00by business community members who who
508. 25:04get that this is a growing risk it's not
509. 25:07going away and it's important
510. 25:10for not only Our Generation uh but
511. 25:14obviously future generations and their
512. 25:16financial well-being and so um super
513. 25:20happy to to be engaged in this super
514. 25:22happy you're doing it and um yeah i' say
515. 25:25that's about it for me but thank you
516. 25:28thank you so much an yeah