The US Federal Reserve has announced that it has formally joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), where it has been notably absent in recent years. The Fed’s membership increases the coverage of NGFS membership to over 80% of global GNP and over 70% of global greenhouse gas emissions. NGFS members also now regulate the vast majority of the world’s systemically important banks and insurers.
The Fed’s move follows last month’s inclusion of climate change in the Fed’s biannual Financial Stability Report for the first time, emphasising that the bank was researching and learning about climate change and its associated risks across its operations.
Federal Reserve Board Chair Jerome H. Powell echoed this emphasis on research in the announcement of NGFS membership when he stated, “As we develop our understanding of how best to assess the impact of climate change on the financial system, we look forward to continuing and deepening our discussions with our NGFS colleagues from around the world.”
At a press conference the day following the NGFS announcement, Chair Powell gave further insights into the Federal Reserve’s movement towards greening its operations, saying that the Fed would move “carefully and thoughtfully” and with “a great deal of engagement” and “great transparency”. Powell called climate change “an emerging risk to financial institutions, the financial system, and the economy,” but suggested a very limited role for the Federal Reserve in reducing greenhouse gas emissions.
“The real place to focus, for me, is supervision of financial institutions and then financial stability concerns… Monetary policy, maximum employment, stable prices – it’s less obvious to me,” he said. Powell also ruled out credit allocation to favour emissions reductions, saying that he would be “very reluctant to see us move in that direction, picking one area as creditworthy and another not.”
President-elect Joe Biden has made climate change a central priority of his agenda, including mandatory climate risk disclosure in his “Day One” plan, calling climate change “an existential threat… to our environment, but to our health, our communities, our national security, and our economic well-being.” Sixty per cent of the American people view climate change as a “major threat”. Yet, while Federal Reserve membership in the NGFS is welcome news, there is little to suggest that the Fed is currently prepared to contribute substantially towards American efforts to reduce emissions.
This page was last updated April 23, 2021
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