The US Federal Reserve has disbanded a number of internal groups set up to help the US central bank identify and respond to financial stability threats posed by climate change.
Among those dismantled are the Supervision Climate Committee and the Financial Stability Climate Committee, which were established in early 2021.
That’s around the time the Fed — under US President Joe Biden — began to speak more openly about the financial implications of a hotter planet and increasingly erratic weather patterns.
Former Fed Vice Chair Lael Brainard said at the time that the two committees were part of an effort to build “institutional capacity and knowledge” on climate risks and vulnerabilities.
Both committees were shut down in March, according to a person familiar with the matter who asked not to be identified disclosing confidential information. Two other climate-focused groups — the Climate Committee on Economic Activity and the Climate Data Committee — were also shuttered around that time, the person said.
Fed staff were notified of the closures through internal emails, one of which came from Kevin Stiroh, a senior Fed official who represents the central bank on climate topics in international forums. Stiroh, who also chaired the Supervision Climate Committee, explained that the Fed will assess climate risk as part of its business-as-usual activities, the person said.
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A spokesperson for the Fed declined to comment. Stiroh and Michael Kiley, the deputy director of the Fed’s financial stability division who had chaired the Financial Stability Climate Committee, weren’t available to comment, the Fed spokesperson said.
The supervision and financial stability committees had secretariats of fewer than five people each, and a larger group of Fed employees worked part-time on committee projects, the person said. It’s not clear that the winding down of the committees has resulted in any jobs being cut, the person said.
Then and now
Bill Dudley, a former president of the Federal Reserve Bank of New York, said back in 2021 that the creation of the climate committees showed the Fed “takes climate change seriously” and that “top officials are committed to regularly evaluating and responding to the threat”.
Their dissolution comes as the Trump administration openly attacks green policies.
Fed Chair Jerome Powell has in the past acknowledged the threats that climate change poses to the US economy and financial system, while also repeatedly stressing that the central bank doesn’t have a mandate to foster a low-carbon transition.
The Fed has come under pressure in recent years from Republican lawmakers, including over concerns that climate considerations have unduly influenced financial regulation, and that the central bank has become increasingly politicised.
“You heard me say over and over again that we will not be climate policymakers,” Powell said in a press conference earlier this month. “Our role on climate is a very, very narrow one.”
The Fed’s caution toward incorporating climate risk in its work predates the re-election of US President Donald Trump. That includes persistent efforts to rein in the climate programme of the Basel Committee on Banking Supervision, with the Fed scoring several major concessions over the past 18 months.
And with Trump’s return to the White House, the Fed has taken further steps to distance itself from any climate work. Just days before Trump’s January inauguration, for example, the Fed quit the Network of Central Banks and Supervisors for Greening the Financial System.
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The economic threats of unfettered global warming are well-documented, and though estimates vary on the scale of value destruction, many studies suggest the hit to gross domestic product would be substantial.
In a paper published earlier this year, the University of Exeter together with the Institute and Faculty of Actuaries said the world faced “planetary insolvency”, with the potential financial loss from climate change set to be 50% of GDP between 2070 and 2090, unless immediate policy action to curb emissions is taken.
The FSCC was supposed to ensure coordination with the Financial Stability Oversight Council and its member agencies, and to increase the Fed’s international engagement and influence on climate.
Staffers on the committees were instrumental in developing the Fed’s climate-scenario analysis exercise, in which it assessed the six largest US banks’ ability to manage climate risks. They also contributed to climate risk work at the Basel committee and the NGFS, and inter-agency guidance in the US.
While the Fed has scaled back its climate-related work, other major central banks, including the European Central Bank and the Bank of England, continue to focus on the topic. A recent study from researchers at University of California, Berkeley and University College London, concluded central bank policy on climate topics is closely correlated with — and influenced by — national politics.
