The Hill reported earlier this month on how opaque decisions within the insurance industry were laying the groundwork for where Americans will live as the planet heats.  

But the risk goes beyond that, many experts warn: The complex interrelationships between insurance, mortgage lending and the broader financial system have made climate change “an emerging risk to financial stability,” according to the 2023 report by the Financial Stability Oversight Committee. 

Senate Budget Committee Chair Sheldon Whitehouse (D-R.I.) has been a principal voice warning of the financial risks spilling over as climate change impacts the insurance industry.  

Sen. Whitehouse sat down with The Hill to discuss why he worries climate change poses risk to the global financial system and the role of the Senate in addressing it. 

 
Q: Some experts warn about the potential of Great Recession-style systemic risk from climate insurance — but others argue that, however serious that risk might be, it’s fundamentally a regional issue, restricted to places like Florida. Which side of that do you come down on? 

 
Whitehouse: There are very significant indicators and it’s going to be big, national, and even global. A number of studies show a very high risk to the world economy from calamities — and insurance is at the heart of that.  

 
The Florida insurance market is more or less circling the drain right now in the way in which Freddie Mac’s chief economist predicted: that with the danger of sea level rise and coastal storm activity, coastal properties become increasingly expensive to insure and then they become uninsurable. 

 
And once they become uninsurable, they become unmortgageable. And once buyers can’t get mortgages for those properties, the values crash — because you’ll now only have cash buyers on the demand side.  

 
And that was predicted by Freddie Mac to produce a systemic nationwide economic shock, akin to or greater than the [2008] mortgage meltdown. 

 
Q: So to push back on that a bit, the mortgage industry would say, even if the Florida coast becomes uninsurable, it’s still a regional problem — however serious it might be. 

Whitehouse. The problem with that is that the sea levels and storm risk aren’t just increasing in Florida.  

 
You’re seeing it through South Texas. You’re seeing it in the Louisiana and Atlantic coast. Florida is getting first and worst because it has so much coast and a sketchy insurance market. But Florida would just be the leading edge of a problem that would hit coasts all around the United States.  

 
And you now have [flooding’s] evil twin, wildfire risk. Once you get away from the coast and out particularly to the west and to areas where wildfire risk is no longer either temporally or geographically predictable. 

 
Q: For the Senate Budget Committee — what legislative intervention could help defray some of that risk?  

Whitehouse: I mean, obviously, solving the climate problem would put a huge amount of this risk out under better control.  

 
When we’re looking at federal debt, a third of it — a whole third — was produced by unexpected shocks, like [the mortgage crisis of] 2008, and by COVID.  

 
And there’s every reason to believe that the shock of an insurance and property values crash from coastal and wildfire risk would be worse than those. 
 

The thing about these climate [risks], is that unlike 2008 — where there’s panic and economic crash, the bottom falls out of markets, but then the values return. [But] if the underlying risk is that the property is going to be underwater, or that the house is going to burn four or five times during the course of a 30-year mortgage, then that [risk] that doesn’t go away. So there isn’t a rebound.  
 

That’s what makes it so dangerous. 

Teresa Anderson is global lead on climate justice for ActionAid International.

Last month, from Bangladesh to Kenya to Washington DC, over 40,000 activists in nearly 20 countries hit the streets calling on banks, governments and financial institutions to “#FixTheFinance” pushing the planet to the brink. 

It’s clear that we can’t address the climate crisis unless we fix the finance flows that are failing the planet. When we know that we have hardly any time left to avoid runaway climate breakdown, it’s absurd that so much of the world’s money is still being poured into fuelling climate change, while barely any is going to the solutions. 

Let’s face it – the climate crisis is really about money, and our choices to use it and make it in really stupid ways.  

G7 offers tepid response to appeal for “bolder” climate action

Many of the world’s most powerful private banks are holding their Annual General Meetings over the next weeks. Banks like Barclays, HSBC and Citibank are pumping billions into fossil fuel expansion, knowing full well that their decisions directly lead to climate chaos and devastating local pollution, particularly for communities in Africa, Asia and Latin America. At their AGMs they will undoubtedly celebrate their profits, self-congratulate on miniscule policy tweaks, and try to ignore the clamour of climate criticism.   

ActionAid research last year showed that these banks are financing an astonishing amount of fossil-fuel and industrial agriculture activities in the Global South, causing land grabs, deforestation, water and soil pollution and loss of livelihoods – all compounding the injustice to communities also getting routinely hit by droughts, floods and cyclones thanks to climate change.  

HSBC, for example, is the largest European financer of fossil fuels and agribusiness in the Global South. Barclays is the largest European bank financier to fossil fuels around the world. And Citibank is the largest US financier of fossil fuels in the Global South. The banks have so much power, and so much culpability, much more than most people realise. But they want us to forget the fact that they are working hand in hand with, and profiting from, the industries that are wrecking the planet.  

The banks can actually turn off the taps. They can end the finance flows that are fuelling the climate crisis. So to avert catastrophic climate change, the fossil-financing banks must start saying no to the corporations destroying the planet.  

But it’s not only private finance that is flawed – public funds are being misused as well. Governments are using far more of their public funds to provide subsidies or tax breaks for fossil fuels and industrial agriculture corporations, than they are for climate action. This is ridiculous – it’s hurting the planet, and its hurting people.  

Public funds instead need to be redirected towards just transitions that address climate change and inequality.  

There is growing appetite for climate action. But this just isn’t yet matched by willingness to pay for it. Or even to stop profiting from climate destruction. 

COP29 finance goal

This year’s COP29 climate talks will be a critical test of rich countries’ commitment to securing a liveable planet. The world’s poorest countries are already bearing the spiralling costs of a warming planet. So far they have only received begrudging, tokenistic pennies from the rich polluting countries to help them cope. The offer of loans instead of grants in the name of climate finance is just rubbing salt into the wounds. 

If we want to unleash climate action on a scale to save the planet, rich countries at COP29 will need to agree a far more ambitious new climate finance goal based on grants, not loans. 

Because if we want to save our planet, we will actually need to cover the costs. 

Tensions rise over who will contribute to new climate finance goal

Last month the International Monetary Fund and the World Bank held their Spring meetings in Washington DC. These institutions are powerful symbols of the planet’s dysfunctional finance systems which urgently need fixing. The World Bank is financing fossil fuels yet being extremely secretive about it. The IMF is pushing climate-devastated countries deeper into debt that often requires further fossil extraction for repayment.

Even as they brand themselves as responsible channels for climate finance, the world’s most powerful financial institutions are pushing our planet to the brink. Their stated aim to get “bigger and better” really amounts to all-out push to get “bigger” but only token tweaks to get “better”.  The Spring meetings ended with business-as-usual backslapping. But if they were taking climate change and its consequences seriously, at the very least, the IMF and World Bank would stop financing fossil fuels and cancel the debts that are pushing climate-vulnerable countries into a vicious cycle.  

Will blossom of reform bear fruit? Spring Meetings leave too much to do

All of these finance flows need fixing. At the moment, the global financial system is better designed to escalate – rather than address – climate change, vulnerability and inequality. The activists, youth and frontline communities who filled the streets last month hope that their calls to stop financing destruction will be heard in the boardrooms and conferences on the other side of the world. 

They say that money talks. This is the year that the climate movement is going to make sure it listens.