Federal Reserve Opts Out of Global Climate Network Amid Political Shifts
The Federal Reserve has recently decided to exit a prominent international network focused on climate change risks, coinciding with the imminent return of Donald J. Trump to the presidency. This decision marks a significant shift in the central bank’s approach to climate-related financial risks.
Initially, the Federal Reserve formally became part of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in December 2020, following President Biden’s election. The move was celebrated by Democrats who argued that it was crucial for financial regulators to ensure that institutions were effectively managing risks from extreme weather events.
However, Republican lawmakers criticized the Fed’s involvement, contending that it was overreaching its congressional mandate, which primarily focuses on maintaining stable inflation and a strong job market. Concerns were raised about potential discouragement of loans to fossil fuel companies like oil, gas, and coal producers.
The NGFS was established to facilitate idea exchange and research among central banks and regulators regarding climate-related risks in the financial sector. Its mission includes mobilizing finance towards a sustainable economy.
Fed’s Departure and Internal Votes
Although the Fed initially aligned with the NGFS’s objectives, a recent statement indicated its departure due to the group’s expanding focus beyond the board’s statutory mandate. Five out of seven Fed governors, including Chair Jerome H. Powell, voted in favor of leaving the network, while Adriana Kugler and Michael S. Barr abstained. Mr. Barr also announced his plan to step down from his role by February 28.
The NGFS expressed its disappointment over the Fed’s exit, though it respected the decision. Yann Marin, the network’s secretary general, acknowledged the expanded scope of the group’s work, driven by improved understanding of financial stability risks from climate and nature events.
Historical Context and Reactions
The NGFS was formed in December 2017, shortly after Trump’s initial announcement of the U.S. withdrawal from the Paris climate accord. Fed’s initial participation in the network signified a recognition of the growing financial risks from climate change, although Republicans later accused the central bank of engaging in “climate activism.”
Contrastingly, the European Central Bank has embraced a role in transitioning to a low-carbon economy. Fed Chair Powell has consistently maintained that climate issues fall under Congress’s purview, not the Fed’s.
In November, the Fed refused to endorse a plan by the Basel Committee on Banking Supervision aimed at requiring lenders to disclose climate risks, citing concerns about transparency around such risks potentially increasing financial vulnerabilities.
Expert Opinions on the Withdrawal
Experts in climate and financial systems have expressed concerns over the Fed’s withdrawal. Lisa Sachs, director of Columbia University’s Center on Sustainable Investment, highlighted that the membership did not compel the Fed to act beyond its statutory limits, while noting a trend of U.S. retreat from international leadership roles.
Sarah Bloom Raskin, a former Fed governor, described the move as “both substantively and symbolically significant,” warning that it could hinder the country’s ability to manage climate risks effectively. She remarked on the ominous symbolism of this decision at the start of 2025.
Original Story at www.nytimes.com