Twenty US senators including Diane Feinstein, Bernie Sanders, Elizabeth Warren, Kamala Harris and Corey Booker, have written to the Federal Reserve, the US central bank, asking for detailed information on the steps taken to identify and manage climate-related risks in the US financial system.
They also wrote to the Office of the Comptroller of the Currency, an independent bureau within the United States Department of the Treasury, and the Federal Deposit Insurance Corporation (FDIC), which insures deposits in US banks in the event of bank failures.
It comes as the central banks, like those in France and the Netherlands (see analysis here), are ramping up their ESG commitments.
Both the FDIC and the OCC confirmed that they had replied to the letter but declined to share the contents of the reply. The Federal Reserve did not respond to inquiries. None of the senators’ offices that were contacted responded to requests for copies of the replies.
The letter cites the Network for Greening the Financial System (NGFS) that incorporates the central banks of 18 countries in developing best practices for incorporating climate risk into forward looking scenario analysis and stress tests for national financial systems. It also draws attention to the Bank of England decision to include climate change in its stress testing as early as 2020.
In contrast, said the letter, none of the US agencies made any mention of climate risk in their most recent supervisory or risk assessment reports, despite the fact that the US had experienced 12 months of devastating damage and loss of value as a result of extreme weather conditions, from forest fires, to flooding, to hurricanes and other storms.It urges the agencies to assess the US financial systems for their readiness to cope not just with extreme weather but with a transition to renewable energy that might leave up to 80% of the world’s fossil fuels as stranded assets. It urges this examination on a micro and macro level.
The Fed has published some economic research on the climate, notably The Green Dividend Dilemma: Carbon Dividends Versus Double-Dividends earlier this month,
The letter concludes with six questions:
- Are you conducting this analysis and is it a regular component of your “micro-prudential supervision”?
- Are the systemic risks of climate change assessed? What tools and modeling are used, if any?
- Has resilience been tested and have any actions been taken to increase resiliency?
- Has there been any collaboration internationally with other government’s central banks?
- Have events, working groups, or any other internal or external actions been taken to assess climate change risk?
Any reply to these questions, especially to the last question, would have to be considered very carefully since each of these agencies is operating under an administration that denies that there is such a thing as climate change risk.