... [+]From the moment Climate Week 2023 kicked off last week in New York City, it was clear the event would be marked by historic action to elevate the role of financial markets in confronting climate change.
For decades, leading investors have recognized that climate change and other sustainability issues represent a major risk to financial markets, because its effects pose a threat to companies’ facilities, workforces, supply chains, communities, and infrastructure. Now, after years of work to incorporate these risks into our financial system, the 15th annual showcase of climate action made clear that markets are taking a big step forward to account for and act on them.
First came the announcement from the world’s fifth-largest economy at Climate Week’s opening ceremony, as California Gov. Gavin Newsom confirmed that he would soon sign into law two historic bills that had just passed the state legislature. The first-in-the-nation legislation will require more than 5,000 large companies that do business in the state to report their global greenhouse gas emissions across their value chains and even more to disclose the climate risks their businesses face.
Investors got more good news just two days later, with a new tool to address another massive global threat: the accelerating loss of nature and biodiversity. This crisis — distinct yet inseparable from the harmful effects of climate change on the natural world — also represents a major risk to corporate supply chains, but until now, there has been little organized effort to provide investors with the information they need about how companies are managing that risk.
While reporting and disclosure provide insight for well-functioning capital markets, fully confronting the climate crisis requires action. To that end, U.S. Treasury Secretary Janet Yellen unveiled new principles last week for financial institutions and investors to achieve their net zero goals. Crucially, these principles call for the private sector to go beyond setting goals and by adopting transition plans — detailed sets of actions, measurements, and methods for achieving those goals.