The Federal Reserve is moving closer to joining an international group of central bankers working to understand and reduce climate change risk, paving the way for the world’s most influential central bank to help shape global financial markets’ response to a warming world.
Fed Chair Jerome Powell on Thursday said the U.S. central bank had been working with the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), and had been attending meetings. “I think we are in the process of applying for membership there now,” he said.
Fed Governor Randal Quarles told lawmakers in testimony on Tuesday, “We have requested membership,” adding, “I expect that it will be granted.”
The NGFS has not yet received an official letter of application laying out the Fed’s motivation for joining and its areas of interest, as required by the organization’s charter, NGFS Secretariat head Morgan Despres told Reuters on Friday. But the U.S. central bank has been in talks for months with the group about what it needs to do to join and the workload being a member would entail, he said.
Fed staff have also been invited to take part in a couple of workstreams, including one on sizing up the impact of climate change on the economy and financial stability, and another on bridging data gaps, Despres said.
The Fed is the only major global central bank besides the Reserve Bank of India that is not a member of the NGFS.
The Fed would bring its expertise as regulator and interest-rate setter for the world’s biggest economy and center of global capital markets, as well as its deep bench of research economists, some of whom have been delving into climate–change topics in recent years.
“You can say it will be a game changer,” Despres said. “If you are a member you contribute…and you can benefit. … It does make a difference for us…it does make a difference in fighting climate change.”
In its biannual assessment of financial stability vulnerabilities released earlier this week, the Fed for the first time included climate change risk.
“The public will expect, and has every right to, that we will make sure that the financial system is resilient against all sorts of major risks, including climate change,” Powell said Thursday, adding that doing so follows from the Fed’s Congressionally assigned mandates.
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 abrupt price changes from climate-related disasters that could reverberate through financial markets.
Though Republican President Donald Trump’s 2016 campaign pledge to remove the U.S. from the Paris Accord was not a technical barrier to the Fed’s joining the NGFS, it would have complicated any public commitment to fighting a phenomenon Trump called a hoax. Democratic President-elect Joe Biden has said he will rejoin the climate pact.
For the Fed to join the NGFS, said Steven Rothstein, managing director at Ceres Accelerator for Sustainable Capital Markets, “It sends a concrete message to the market that climate is important … for bank stability reasons.”