Fed will ‘probably’ join green central banking group – Powell

Public has right to expect the Fed to ensure the system is resilient against climate change, says governor

Jerome Powell
Federal Reserve

The Federal Reserve is in ongoing discussions to join the Network for Greening the Financial System (NGFS), having been a notable absentee since the group’s inception.

“We have been looking at joining in one form or another and talking to them about that,” governor Jerome Powell said in the January 29 monetary policy decision press conference. “We probably will do that at some point.”

The Fed will be joining more than 50 other central banks and financial regulators who are members of the NGFS, a group set up to support the financial sector in achieving the objectives set out by the 2015 Paris Agreement.

Powell’s remarks were the first public indication of the Fed’s intentions to join the network.

When asked if there was a system-wide financial stability risk from climate change, he said: “Over the longer term it’s certainly possible and I would say that feeds into the way we are thinking about climate change.”

The remarks contrast with an April 2019 letter Powell sent in response to senator Brian Schatz and other lawmakers asking whether climate change is factored into the central bank’s financial stability analysis. Powell said: “The board’s framework provides a systematic way to assess financial stability; however, some potential risks do not fit neatly into that framework.”

He added that “some potential risks are difficult to quantify … especially if they materialise over such a long horizon that methods beyond near-term analysis and monitoring are appropriate.”

The Fed is likely to have faced strong political pressure not to join the network, officials from other central banks working with the NGFS have told Central Banking. US president Donald Trump is a notable climate change sceptic, and his administration pulled the US out of the Paris Agreement.

It is not clear if anything material has changed, but Powell noted in his January 29 remarks that Fed representatives have been attending NGFS meetings.

“I think the public has every right to expect, and will expect, that we will assure that the financial system is resilient and robust against the risk from climate change,” Powell said. “In that sense it has to be part of our role.”

Powell’s remarks also follow recent efforts by the Fed to step up research into the effects of climate change on the financial system and raise awareness about the potential supervisory impacts.  

“We have a supervisory mandate, where we are supervising financial markets, utilities and financial institutions, and we share overall responsibility for financial stability with a number of other agencies,” he said. 

The Fed has published several climate-related studies in recent months, ranging from the impact climate change could have on the macroeconomy and its systemic risks, to the environmental biases of trade policy.

The central bank also hosted its first climate change conference in November last year, which was attended by Frank Elderson, a member of the governing board of the Netherlands Bank and chairman of the NGFS.

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