09.24.2020
By Shanny Basar

CFTC Emphasizes Setting Carbon Price

Rostin Behnam, commissioner at the US Commodity Futures Trading Commission, said establishing a price on carbon in the US is the most important step to manage climate risk and drive the appropriate allocation of capital.

Benham sponsored the report, Managing Climate Risk in the U.S. Financial System, from the CFTC’s market risk advisory committee which was released this month. The climate subcommittee voted unanimously 34-0 to adopt the report.

The commissioner gave a keynote speech yesterday at the The Rise of the Green Economy webinar hosted by FTSE Russell and PRI.

Rostin Behnam, CFTC

Behnam said that after many conversations and  seeing the work done overseas it was important for US financial markets to measure risk from climate change. He continued that  escalating weather events such as the the current fires on the West coast and the stronger hurricane season pose significant challenges to the financial system and long-term economic growth.

“Our report made 53 recommendations but  number one is setting the price of carbon to drive the appropriate allocation of capital,” he said. “The US is behind but this is an effort to level the playing field.”

The report is the first of-its-kind effort from a U.S. government entity. Behnam said he began the effort to examine climate-related impacts on the financial system in June last year. The regulator then set up the Climate-Related Market Risk Subcommittee, under chair Bob Litterman, which had diverse members ranging from financial markets, the banking and insurance sectors to the environmental and sustainability public policy sector, and academia.

The CFTC said: “This report recognizes that pricing carbon is beyond the remit of financial regulators; it is the job of Congress.”

Buy side

Herman Bril, director of office of investment management at the United Nations Joint Staff Pension Fund, agreed on the webinar agreed that a carbon price is very important.

“Finance cannot solve the climate change crisis on its own and there also needs to be action from government and companies,” he said.

Bril continued that the pension fund has taken several steps since 2000 to respond to climate change with the most recent being divestment from coal.

“We set a target of divesting from coal in the energy sector before end of this year and reached our goal at the beginning of this month,” he said.

Pedro Guazo, representative of the Secretary-General for the investment of the UNJSPF assets, said in a statement at the time: “This is a major step that shows our commitment to sustainable investing.”

Nearly all, 84% of the assets of the UN pension fund are managed internally. Bril said the fund screens for exclusions, such as with coal, fully integrates environmental, social and governance criteria across all asset classes and believes in stewardship and proxy voting.

The fund has partnered with a climate boutique to translate climate change scenarios into investments.

“Every stock has an e-score for transition risk which is forward looking and not based just on the current carbon footprint,” he said.

Geneviève Bouthillier, managing director, private mid-market companies & stewardship investing at CDPQ, said climate change became a priority in 2017 for the pension fund for Quebec.

“We retro-engineered our carbon intensity budget based on science-based targets across all asset classes,” she said. “The reduction in carbon footprint in our portfolio is linked to compensation.”

Craig Mackenzie, head of strategic asset allocation at Aberdeen Standard, said the identification of green securities needs to be industrialised.

“The industry also needs to shift to net zero and commit to decarbonization,” he added. “Firms need to publish targets and demonstrate transition.”

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