Fed formally joins global panel working to reduce climate risks

Climate change warriors just added a powerful new member to their ranks.

The United States Federal Reserve on Tuesday said it has formally joined a global panel of central banks and supervisory authorities working to develop the environment and climate risk management for the financial sector.

The Fed began participating in discussions and activities with the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) more than a year ago.

But Tuesday’s announcement signals the US central bank is stepping out from behind the scenes to take a very public seat at the table in a body dedicated to providing global leadership in the fight against what many activists describe as a “climate emergency”.

“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,” said Federal Reserve Chairman Jerome Powell in a statement.

As the steward of the world’s largest economy, the Fed’s interest rate decisions and other monetary policies ripple throughout the globe. The US is also the epicentre of global capital markets.

The NGFS not only taps that experience, but it will also gain access to the Fed’s deep bench of research economists, some of whom have been delving into climate-change topics in recent years.

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.

Though US President Donald Trump’s withdrawal from the landmark Paris Agreement was not a technical barrier to the Fed joining the NGFS, it would have complicated any public commitment to fighting global warming, which Trump has called a hoax.

President-elect Joe Biden has said he will rejoin the Paris Agreement.

Tuesday’s move also comes ahead of potential pressure from the future Biden administration to demand that regulators more actively respond to the global fight against climate change via the financial system, analysts say.