US Fed set to join green central banking group

Federal Reserve Chair Jerome Powell has said tackling climate change risk “has to be part of its role” and signalled it is looking into joining the central banking body Network for Greening the Financial System (NGFS).

Speaking at a news conference yesterday, Powell said: “The public has every right to expect and will expect that we will ensure that the financial system is resilient and robust against the risks of climate change.”

He continued that the Fed was in the very early stages of the work on the topic. “It has to be part of our role,” he said. “But not the overall response of society to climate change.”

When asked why the Fed wasn’t a member of the NGFS, Powell responded: “We’ve attended all of their meetings. We’ve been looking at joining in one form or another and talking to them about that. We probably will do at some point. So that is an ongoing question.”

The NGFS has grown quickly over two years to 54 members and 12 observers, most recently welcoming the Bank of Japan and the Bank of Russia. The US Fed is one of a handful of central banks from major economies to not be members. RI understands the subject of climate change is politically sensitive for the Federal Reserve System.

"The public has every right to expect and will expect that we will ensure that the financial system is resilient and robust against the risks of climate change"

Nevertheless, last year the San Francisco Fed last year hosted the central bank’s first-ever conference on climate change and US regulator Commodity Futures Trading Commission is looking into climate risk with Bob Litterman at the helm. Federal Reserve Banks have also been doing research into climate change.

The US Fed is also under political pressure from US Democrats such as US Presidential challenger Elizabeth Warren, who is supporting a bill that would require it to conduct climate change stress tests.

Powell’s comments come as fellow senior central bankers are speaking increasingly on climate change and green finance.

Christine Lagarde, the new president of the European Central Bank (ECB), announced last week a major review of its monetary policy strategy, to include environmental sustainability.

Launching the review, last conducted by the ECB in 2003, Lagarde told reporters: “Climate change is actually a threat to financial stability”.  She spoke about the ECB possibly increasing its share of green investments in its portfolio and making sure climate risk is embedded in models and forecasts.

Banque de France Governor François Villeroy de Galhua also spoke to integrating climate risk in economic and forecasting models in a forward to new book Green Swan, launched last week. 

And this week Pierre Wunsch, Governor of the National Bank of Belgium, warned of the lack of supply of credible green assets, saying: “Bankers are greenwashing their portfolios because they know people want to invest into green investments and they just don’t have them.”