WASHINGTON — The Federal Reserve and its 12 regional district banks — licensed to oversee private banks and promote economic stability in the United States — must consider climate risks to protect the financial system and economy from growing economic impact climate change and the transition to a clean economy. saving energy, a new report from the NRDC (Natural Resources Defense Council) urges.
How Federal Reserve Regional Banks Can Cope with Climate Change Economic Risknotes that with increasing risks to our financial system, the Federal Reserve is expected to address financial and economic risks related to climate change.
“As the nation’s economic guardian, the Federal Reserve has an obligation to assess risks to the economy, protect consumers, and promote financial stability, but it is not doing enough today to keep growing risks from climate change,” said report author Sarah Dougherty, head of the Green Finance Center at the NRDC and who worked at the Federal Reserve. “To fulfill its mission, the Federal Reserve System must address these growing risks and costs in its areas of responsibility.”
By considering the risks – to the economy and financial institutions – posed by more extreme weather events and a transition to a low-carbon economy, the Fed can potentially avoid or cushion shocks to industries, geographies and cross-cutting supply chains affected and to lenders, investors and consumers affected, according to the report.
Leading scientists warn that climate impacts are accelerating – worsening hurricanes, droughts and wildfires – which will increasingly hurt the US economy. As part of the Fed’s duty to protect the nation’s banking and financial system, it plays an important role in protecting banks and our financial system from the economic harms of climate change.
“Together with the nation’s banks, businesses, and community leaders, the Fed must use every tool in the kit to protect families, communities, and the entire financial system from the economic upheaval fueled by climate change,” he said. said Dougherty.
The report highlights four of the 12 districts, which are feeling the effects of climate change: more violent hurricanes, extreme rainfall affecting agriculture, record wildfires in the West and the shift from fossil fuel production to clean energy. While the impacts are already costly, they weren’t covered in the Beige Book, the Fed’s regular reports of economic activity that help paint a national picture of the economy when released eight times a week. year.
The Federal Reserve system has also not widely incorporated climate risks into its work of analyzing emerging issues and minimizing systemic risks to the economy and financial institutions.
Unless the full spectrum of climate risks is taken into account – in the portfolios of individual banks, in the potential impact on the entire US financial system, and in the Fed’s work to keep prices stable and maximize employment – the US economy could experience severe financial shocks and losses due to climate change, and people may suffer economic hardship. Vulnerable groups, especially low-to-moderate income communities and communities of color, are particularly at risk, the report concludes.
The report contains four specific recommendations:
Conduct research, collect data and raise public awareness at the district bank level on climate economic risk. District banks should collect data and conduct research on the economic effects of climate change, focusing on conditions within their districts, including disaggregated by community, income and race to ensure the economy works for all .
Highlight the economic effects of climate change in Beige Books. District banks should increase their collection of information on the Beige Book by specifically asking their sources about the climate change-related economic effects of events such as hurricanes, drought and wildfires and about adaptation measures that stakeholders implement.
Consider climate change risk in more detail in price stability research. District banks should deepen their research on price expectations in the context of climate change and improve their collection of climate change related data (including for the beige book) and their modeling of prices and inflation.
Address the disproportionate impact of climate change on low-income communities and communities of color. District banks should collect the data and conduct the qualitative research—disaggregated by community, income, and race—needed to provide guidance to policymakers and enable the Fed to carry out this aspect of its mandates.
The full report is available at: https://www.nrdc.org/resources/how-regional-federal-reserve-banks-can-contend-economic-risk-climate-change
A blog post by Sarah Dougherty and her colleagues on the matter is here: https://www.nrdc.org/experts/sarah-dougherty/what-fed-district-reserve-banks-should-do-about-climate-0
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The NRDC (Natural Resources Defense Council) is an international non-profit environmental organization with over 3 million members and online activists. Since 1970, our lawyers, scientists and other environmental specialists have worked to protect the world’s natural resources, public health and the environment. The NRDC has offices in New York, Washington, DC, Los Angeles, San Francisco, Chicago, Bozeman, MT and Beijing. Visit us at www.nrdc.org and follow us on Twitter @NRDC.