GOP lawmakers warn financial regulators to back off climate-change policies

Sen. Patrick Toomey, R-Pa., the highest-ranking Republican on the Senate Banking Committee, takes aim at the Fed, SEC for 'mission creep.'

Republican lawmakers cautioned the Federal Reserve on Thursday not to address environmental policy through financial regulation and oversight – a warning that was extended to the Securities and Exchange Commission later in a Senate hearing.

In a letter to Federal Reserve Chairman Jerome Powell, the 12 GOP members of the Senate Banking Committee expressed concern that the Fed has established a committee focused on climate risks and that Fed Governor Lael Brainard said in a February speech that the regulator may require “climate scenario analysis” from banks.

“This would be beyond the scope of the Federal Reserve’s mission,” Sen. Patrick Toomey, R-Pa., the ranking Republican on the Senate Banking Committee, wrote in a letter signed by his 11 colleagues on the panel. “We urge you to refrain from taking any additional actions with respect to climate-related risks that would impose certain costs for uncertain benefits.”

During a Senate Banking Committee hearing on the risks that climate change poses to the financial system, Toomey criticized the SEC for the recent creation of an enforcement task force on climate and environmental social and governance issues.

“The Federal Reserve should not follow the example of other regulators engaged in ‘mission creep’ and nor should the SEC,” Toomey said. “I’ve warned that many on the left want the SEC to use its regulatory powers to advance a progressive social agenda on climate change.”

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He also took SEC Acting Chair Allison Herren Lee to task for supporting corporate disclosure of political spending. In remarks at an online event sponsored by the Center for American Progress, Lee said that firms’ backing of climate initiatives doesn’t always align with their donations to lawmakers who don’t take similar stances on climate policy.

“In other words, these green-friendly companies may support Republicans, and that’s a problem,” Toomey said. “These actions represent an abuse of power and a politicization of the SEC’s disclosure standard. What matters is whether an issue is financially material to a reasonable investor. The real objective here is to punish politically disfavored industries.”

But the chairman of the Senate Banking Committee, Democrat Sherrod Brown of Ohio, praised a growing government-wide effort to elevate policy toward climate change. That movement is being spurred by an overarching climate focus from President Joe Biden.

Other recent SEC actions include an effort to scrutinize corporate climate disclosures and a focus on climate and ESG in agency examinations. On Wednesday, the Commodity Futures Trading Commission announced the formation of a Climate Risk Unit that will analyze the role of derivatives in pricing climate risk.

Brown said Thursday’s hearing was the first the committee has held on the environment and the economy.

“We know that climate change threatens the country’s financial stability,” Brown said. “And the financial sector, and the government agencies that oversee it, are going to have to reckon with the consequences of decades of risky investments in industries that fuel natural disasters and threaten people’s paychecks and their retirement security.”

Democrats hold narrow majorities in the House and Senate. Most congressional committees have put climate policy as it relates to their jurisdiction at or near the top of their agendas.