Taking climate change into account is prudent risk management, Treasury Secretary Janet Yellen said today during the inaugural meeting of the Climate-related Financial Risk Advisory Committee. The 20-member advisory committee was created by the Financial Stability Oversight Council to help it identify and address climate-related risks to the U.S. financial system. Committee members are mostly academics although at least two banks and a credit union are represented. The committee will meet at least twice a year.
Speaking to CFRAC, Yellen said the effects of climate change “are not hypothetical.” There has been a five-fold increase in the annual number of billion-dollar disasters over the past five years compared to the 1980s, even after adjusting for inflation, she said. Responding to rising insurance losses, insurers are raising rates and pulling back from high-risk areas. “This has potentially devastating consequences for homeowners and their property values. Developments like these can spill over to other parts of our interconnected financial system,” she said.