New York’s Top Financial Regulator Directing Banks & Crypto Companies to Address Risks of Climate Change

The New York Department of Financial Services (NYDFS) sent out a letter to banks, firms, and cryptocurrency businesses to pay attention to the financial risks associated with climate change, incorporate them into their business strategies, and develop ways to disclose and mitigate those risks.

#NEWS: Supt. @LindaLacewell announces that #NYDFS expands efforts to ensure the #FinancialServices industry manages financial risks from #ClimateChange. Learn more: https://t.co/qhhtGLXQzJ.

— NYDFS (@NYDFS) October 29, 2020

This letter followed the same guidelines issued by the agency for the state’s insurance providers last month.

NYDFS is the only US member of the Network for Greening the Financial System, an international group of central banks and regulatory agencies that is focused on climate-related financial risks.

New York #leads, we hope others will soon follow #ClimateChange https://t.co/S1pKSKoiru

— Linda Lacewell (@LindaLacewell) October 29, 2020

The letter noted that the US gross domestic product (GDP) sees damage of 1.2% with each rise of one-degree Celsius in global temperatures. As such, those communities that are hit harder by climate change can then lead to an increase in default rates, reduced lending activity, devaluations of assets, and losses.

As for the cryptocurrency businesses, it pointed out how studies suggest the environmental impact of mining digital currencies like Bitcoin can be substantial — annual consumption of energy is equivalent to Venezuela’s electricity usage, and carbon footprint is to that of New Zealand’s.

“The energy cost for mining virtual currencies is sizable compared to the value of the virtual currencies,” said Linda Lacewell, NYDFS Superintendent, in the letter.

The agency wants digital currency firms to consider being more transparent about the location and equipment they use in Bitcoin mining, which is energy-intensive.

“DFS is developing a strategy for integrating climate-related risks into its supervisory mandate,” the letter concluded.

Ripple CEO Brad Garlinghouse called this step from NYDFS “pivotal” and said instead of exacerbating the problem; Bitcoin needs to use more energy-efficient assets as it gains the attention and support of big and mainstream companies.

“XRP was built specifically to use negligible amts of energy,” chimed in Ripple CTO David Schwartz.

Climate change would actually be much worse if we all had to run Ripple nodes because you need an institutional server farm to audit the XRP blockchain that only Ripple can afford to run. https://t.co/JuSSebmH73

— Ryan Selkis (@twobitidiot) October 30, 2020

“The less it costs to start and run a node, the less decentralized a system will be if you think people being able to use it trustlessly going forward is important to decentralization,” added Schwartz on XRP being hard to audit “because it's too expensive and nobody cares.”