The US Federal Reserve and Treasury Department have both been slow to understand and respond to the threat of climate change, despite a new poll showing overwhelming support for urgent action among American voters.
The poll, conducted by the think tank Data for Progress, found that 63% of respondents favoured action to protect the financial system against a future crisis driven by climate change, and only 25% were opposed. However, both institutions have been slow to act.
The US Treasury virtually ignored climate change during the Trump presidency, although this will change with Biden’s appointment of Janet Yellen as Secretary of the Treasury. Yellen, a former chair of the Federal Reserve, was clear about her commitment to climate action during her Treasury confirmation hearing.
“Climate change is an existential threat,” she said. “Both the impact of climate change itself and the policies to address it could have major impacts, creating stranded assets, generating large changes in asset prices, credit risks and so forth that could affect the financial system. These are very real risks.”
However, it remains to be seen how effectively Yellen can turn these words into meaningful actions.
The Fed has also been conspicuous by its absence from central bank analysis and action on climate. It was only in November 2020 that the Fed first recognised climate risk as a threat to financial stability and it was the last major central bank to join the Network for Greening the Financial System.
Prior to that, in December 2019, Fed Governor Lael Brainard gave a speech titled ‘Why Climate Change Matters for Monetary Policy and Financial Stability’. Brainard, who introduced the Fed’s first inclusion of climate change in its bi-annual Financial Stability Report, is emerging as the most climate-aware member of the bank’s Board of Governors.
In contrast, Fed Chair Jerome Powell, appointed by Donald Trump in 2017, has been slow to recognise climate risk to US financial stability. “I would say climate change is an important issue, but not principally for the Fed,” he told a Senate hearing in late 2019. “It is really an issue that is assigned to lots of other government agencies, not so much the Fed.”
Powell’s term as Fed chair ends in February 2022. Meanwhile, Brainard and other climate-concerned members of the Fed system must do what they can, and deserve support and amplification from the Biden administration.
Both the Fed and the Treasury are late to green central banking, and must learn quickly.
This page was last updated April 23, 2021
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