The U.S. Federal Reserve said on Tuesday it has formally joined an international group of central banks working to understand and reduce climate change risk, a signal that the Fed could move to incorporate the impacts of global warming into its regulatory writ.
The Fed’s membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) comes after a yearlong collaboration, the Fed said. It had been the only major global central bank besides the Reserve Bank of India that is not a member of the NGFS.
“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,” Fed Chair Jerome Powell said in a statement announcing the move.
For years, the Fed has stayed on the sidelines or behind the scenes as other central banks pushed to use their regulatory and research clout to mitigate the effects of global warming, including potentially abrupt price changes from climate-related disasters that could reverberate through financial markets.
But that has been changing recently. Last month, the Fed included climate change for the first time in its regular assessment of financial stability vulnerabilities. Powell has said that making sure the financial system is “resilient” against risks, including climate change, fits with the Fed’s congressionally assigned mandates.
Climate change is a contentious political issue in the United States. Republican President Donald Trump has called it a “hoax,” and he exited the Paris Accord that Democratic predecessor President Barack Obama had signed on to. Democratic President-elect Joe Biden has said he will rejoin the climate pact.
The Fed’s decision will likely draw criticism from Republicans concerned that increased attention to the impact of climate change on the financial system could make it more difficult for oil and gas companies to access capital.
Last week, 47 Republican lawmakers wrote to Powell urging him not to join the group or implement climate-change stress test scenarios for banks.
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