The Changing Climate on Wall Street

Increasing and conflicting regulatory requirements and political pressures regarding climate change tested the leaders of U.S. financial institutions, as they struggled to determine how best to comply while managing their business and its risks. In October 2024, Hurricanes Helene and Milton were each predicted to surpass $50 billion in damages across the U.S. Southeast, making them some of the costliest weather disasters in American history. Research attributed about 45% of their economic costs to climate change. Months later, in January 2025, neighborhoods in Los Angeles experienced wildfires of unprecedented scale, forcing evacuations and destroying over 15,000 structures at a cost that could reach $250 billion. Researchers concluded that climate change raised the region’s chances of dry weather, strong winds, and other environmental conditions conducive to wildfires by around 35%. Banks, asset managers, insurance companies, and other financial firms had made varying efforts since the 1990s to assess financial and non-financial risks from the effects of climate change and to adjust business models accordingly. Regulatory requirements and pressures—especially starting in the late 2010s—added to companies’ urgency. The European Union and the United Kingdom put in place comprehensive mandates for financial institutions to report on many aspects of climate risks. U.S. financial regulators introduced climate risk disclosure rules for financial institutions and the U.S. Securities and Exchange Commission (SEC) established climate related reporting requirements for publicly listed companies. In the 2020s, skepticism about climate change in the U.S.—exhibited by a sizable share of Americans—translated to influential policies targeting “ESG,” an acronym standing for environmental, social, and governance. In 2022, Florida’s Department of Financial Services pulled $2 billion from asset manager BlackRock in alignment with new legislation aimed against ESG investing. Other states, including Texas and West Virginia, adopted similar measures as part of a larger campaign against “woke capitalism,” a phrase suggesting that progressive political agendas were compromising the corporate pursuit of profits.