US bill would bar financial firms from new fossil fuel investments

October 21, 2020.
In this image from video, Sen. Jeff Merkley, D-Ore., speaks on the Senate floor about the impeachment trial against President Donald Trump at the U.S. Capitol in Washington, Wednesday, Feb. 5, 2020. The Senate will vote on the Articles of Impeachment on Wednesday afternoon, Feb. 5. (Senate Television via AP)

In this image from video, Sen. Jeff Merkley, D-Ore., speaks on the Senate floor about the impeachment trial against President Donald Trump at the U.S. Capitol in Washington, Wednesday, Feb. 5, 2020. The Senate will vote on the Articles of Impeachment on Wednesday afternoon, Feb. 5. (Senate Television via AP)

Financial companies would be prohibited from making new investments in fossil fuels and the United States would pressure international banks and financial institutions to lower their greenhouse gas emissions under a pair of bills introduced in the U.S. Senate on Wednesday.

Sen. Jeff Merkley, D-Ore. dropped the two pieces of legislation, dubbed the Protecting America’s Economy from the Carbon Bubble Act of 2020 and the Sustainable International Financial Institutions Act of 2020.

The first bill would establish hefty monetary penalties for financial institutions that facilitate new fossil fuel infrastructure such as pipelines and power plants through loans, investments, derivatives transactions and other means.

The second piece of legislation would direct the U.S. executive directors of a dozen international development banks and financial institutions such as the World Bank Group’s Multilateral Investment Guarantee Agency to “advance the cause of reducing carbon emissions and transitioning the global economy to a clean energy economy,” as well as to “oppose any loan or extension of financial or technical assistance to any country or entity to create new capacity for fossil fuel activity.”

Merkley is the ranking member of the Senate Committee on Foreign Relations’ Subcommittee on Multilateral International Development, Multilateral Institutions, and International Economic, Energy and Environmental Policy.

“Fossil fuel investments play a key role in accelerating climate chaos, which continues to spiral further and further out of control and claim lives and livelihoods in the process,” he said. “It’s time to prioritize the interests of the American people and the planet above the wishes of fossil fuel CEOs who want to hold our economy hostage.”

The bills drew praise from a slew of environmental advocacy groups.

“It’s time Congress step up and stop our banks and government from financing the climate crisis at the expense of our communities,” said Natalie Mebane, U.S. policy director for 350.org.

U.S. regulators and banks are showing more openness to addressing climate issues. Last month, the Commodity Futures Trading Commission released an unprecedented report acknowledging that climate change poses “a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” and recommending, among other things, that financial institutions be required to disclose and pay for producing carbon emissions. 

The authors behind the report are executives from major companies such as JPMorgan Chase and Morgan Stanley, which more recently set financing goals aligned with the 2015 Paris Agreement, despite President Donald Trump pulling the country out of the international climate accord.

Those banks are also among the 35 private banks worldwide that financed $2.7 trillion worth of fossil fuel projects between 2016 and 2019, according to the Rainforest Action Network.

Research unveiled Monday showed that U.S. banks are far more exposed to climate risk than previously thought. More than half of syndicated lending is vulnerable to potential “transition shocks” on the path to a net-zero carbon emissions economy, translating into losses that could amount to hundreds of billions of dollars, according to sustainability nonprofit Ceres Accelerator for Sustainable Capital Markets.

In August, Sen. Elizabeth Warren, D-Mass, a member of the Senate Banking Committee, pressed the U.S. Securities and Exchange Commission to force public companies to disclose climate-related risk information, citing investor concerns.

Not long after, key Senate Democrats recommended that the stress test financial institutions on their ability to withstand climate risks, and said monetary policy should reflect those issues.

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