Federal Reserve Becomes Last Major Central Bank To Join Climate Group
Talk about being late to the party.
The Federal Reserve on Tuesday announced it was joining the Network for Greening the Financial System, a global of over 80 central banks including all of the majors whose mission is to “to help strengthening the global response required to meet the goals of the Paris agreement.”
While Fed Chair Powell and other top officials have rightly argued combatting climate change is not in the immediate scope of central bank policy, there’s certainly room for Fed policy makers and other regulators to gauge the very real financial risks—and costs—arising from climate change.
Yet the Fed, despite the size of the U.S. economy and its disproportionate contribution to a worsening climate crisis, has lagged its international peers in even beginning to address the issue.
Somewhat incredibly, it took until last month for the Fed to first formally mention climate as a formal risk in its semi-annual Financial Stability Report.
“Acute hazards, such as storms, floods, droughts, or wildfires, can quickly alter, or reveal new information about, future economic conditions or the value of real or financial assets,” the report said.
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“Moreover, in the presence of rapid shifts in public perceptions of risk, chronic hazards (like a slow rise in sea levels) have the potential to produce similar abrupt repricing events.”
Such language seems to understate the urgency of the matter given the widespread ecological and property damage from this year’s wildfires in the Western United States—which cost insurers between $7 billion to $13 billion, according to Risk Management Solutions.
“The Fed is evaluating and investing in ways to deepen its understanding of the full scope of implications of climate change for markets, financial exposures, and interconnections between markets and financial institutions,” the November report said.
To say time is of the essence is an understatement.