How Dodd-Frank Could Curb the Climate Crisis—Right Now

January 29, 2020

Why This Matters is a series from Roosevelt staff connecting our individual work—from papers to reports and everything in between—to our broader vision of creating a better, more equitable economic and political system. This series will give readers the top takeaways from our latest writing and thinking, with a focus on why they matter as we redefine the rules that guide our social and economic realities.

In the absence of federal climate legislation and amidst a regulatory rollback both sweeping and relentless in nature, it’s no wonder that majorities of Americans believe that our government is doing too little to address the climate crisis. A potential salve for that eco-anxiety: Whenever it’s ready, the executive branch alone could take unprecedented—and legally permissible—action to mitigate the systemic risks threatening our economy and planet.

The key is Dodd-Frank.

As Graham Steele writes in a new Great Democracy Initiative report, under section 165 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, regulatory action could:

  • “Address the concentration of climate change-driving financial activities in the largest financial institutions;
  • Measure and mitigate potential climate change-driven losses across institutions’ balance sheets; and
  • Seek to manage a transition away from those risks in a manner that protects both financial institutions and the economy at large.”

That means that even without an act of Congress, a president could act immediately—not only to reverse the climate-denying executive measures of the last several years, but also to prevent the continued financing of mass carbon emission by requiring banks and asset managers to internalize climate financial risks.

As Steele notes, such action is insufficient on its own and is no substitute for more comprehensive legislation. But in applying the authorities endowed by Dodd-Frank, federal agencies could legally and logically build on decades of momentum in the divestiture movement.

Some individual investors and financial institutions have already chosen to divest on their own terms—for their own interests, their own values, or some combination of both. Most recently, BlackRock CEO Larry Fink announced in a letter to CEOs that the asset-management firm would be moving away from thermal coal as an investment option. As Bill McKibben jokes in the New Yorker, “an investor swearing off coal is a bit like cutting cake out of your diet but clinging to a slice of pie and a box of doughnuts.” Even still, he writes, the divestiture decision of a financial institution holding $7 trillion in global assets is nothing short of “seismic.”

But, as Fink acknowledges, the private sector cannot—and many would argue, will not—lead this fight: “Governments and the private sector must work together to pursue a transition that is both fair and just—we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world,” he writes. “While government must lead the way in this transition, companies and investors also have a meaningful role to play.”

Private actors may change of their own volition, but government action is necessary to hold all entities to the standards necessary for the scope and scale of the climate crisis. Until climate deniers cede the Senate, Dodd-Frank may be our best hope for a path forward. As Americans continue to clamor for bolder action, comprehensive legislation is the next frontier.