Op-Ed: A note to the Oversight Board — Are you considering climate change?
It is the public understanding that the Financial Oversight and Management Board for Puerto Rico (FOMB) is “tasked with working with the people and government of Puerto Rico to create the necessary foundation for economic growth and to restore opportunity to the people of Puerto Rico.”
Furthermore, its express statutory mandate includes that “at any time submit recommendations to the Governor or the Legislature on actions the territorial government may take to ensure compliance with the Fiscal Plan or to otherwise promote the financial stability, economic growth, management responsibility, and service delivery efficiency of the territorial government.”
With such a mandate the FOMB should be evaluating and forecasting multiple contextual factors and indicators that could somehow facilitate or impede that Puerto Rico overcomes its economic and financial difficulties. I am sure that they would not pursue additional non-recurrent funding or just devising disorganized tactics to resolve episodic problems.
Although many policy wonks and experts have discussed the virtues and evils of the FOMB, my aim with this piece is to bring to this debate a systemic risk element that must be earnestly considered by all parties and revise projected actions or measures. Unfortunately, the current political atmosphere has watered down this consideration because of deliberate disinformation from local and transnational actors.
Of course, I contend that climate change and its effects remain the biggest security risk that Puerto Rico faces. Facts from the scientific community and the unstable weather patterns we are witnessing should be a significant cause for concern.
The question is whether the FOMB is considering climate change as an element in its evaluation of Puerto Rico’s dire financial situation and its capacity to overcome it. My biased conjecture is that they are not, and neither is in the government of Puerto Rico.
Presuming their inattentiveness, I use this forum to underline the following report prepared by the Commodity Futures Trading Commission (CFTC), a federal government agency that is tasked with promoting the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation.
The report was prepared and made public by unanimous decision of the CFTC’s Climate-Related Market Risk Subcommittee of the Market Risk Advisory, which drew applicants and ultimately members from financial markets, the banking and insurance sectors, as well as the agricultural and energy markets, data and intelligence service providers, the environmental and sustainability public policy sector, and academic disciplines, focused on climate change, adaptation, public policy, and finance.
This subcommittee stressed that climate change is already affecting every economic sector, as well as areas such as agriculture, real estate, infrastructure, health, and labor productivity. But the most poignant conclusion is transcribed below:
“A central finding of this report is that climate change could pose systemic risks to the U.S. financial system. Climate change is expected to affect multiple sectors, geographies, and assets in the United States, sometimes simultaneously and within a relatively short timeframe. Transition and physical risks — as well as climate and non-climate-related risks—could interact with each other, amplifying shocks and stresses. This raises the prospect of spillovers that could disrupt multiple parts of the financial system simultaneously. Besides, systemic shocks are more likely in an environment in which financial assets do not fully reflect climate-related physical and transition risks. A sudden revision of market perceptions about climate risk could lead to a disorderly repricing of assets, which could in turn have cascading effects on portfolios and balance sheets and therefore systemic implications for financial stability.”
While making a fair assessment of the incipient nature of strategies to address climate change, the report indicates that tackling greenhouse gas emissions and other climate risks are acutely troubling, in the long and short-haul, exemplifying that “as the COVID 19 pandemic is likely to leave behind stressed balance sheets, strained government budgets, and depleted household wealth, which, taken together, undermine the resilience of the financial system to future shocks.”
The fact is that a future shock, disaster or incident is almost certain. Undoubtedly Puerto Rico has already endured disasters that could be easily attributed to the effects of climate change. I am no financial expert, but what is publicly known is that Puerto Rico is in a much worse situation than when the FOMB was appointed. The possibility that another atmospheric incident and the continued effects of the pandemic, coupled with austerity policies, paint a very somber future.
The National Resources Defense Council recently reported that the public health costs of 10 climate-related events they studied in the US have cost more than $ 10 billion. It is particularly distressing that Medicare and Medicaid paid for two-thirds of the cost of those climate-related illnesses. Does anyone remember Medicaid?
The question is then — is the FOMB considering climate change in its risk assessment? Are the strain of the recent disasters and the pandemic being factored to mitigate its potential threats? Knowing the financial system is vulnerable and weak, should the fiscal plans be significantly modified?
I don’t expect any answers, but climate change is already here.