Stress Scenarios Are Just The First Step—The Fed Must Take Action To Curb Climate Risk

Today, Evergreen Action Executive Director Jamal Raad released the following statement in response to U.S. Federal Reserve Chair Jerome Powell’s remarks to the Senate Banking Committee that the central bank is looking into climate stress scenarios: 

“The Federal Reserve must act quickly and use every available vehicle to mitigate the systemic risks that climate change poses to our financial system. Chairman Jerome Powell’s confirmation that the Fed is considering the use of climate stress scenarios is a promising first step, but more must be done to protect the stability of our economy and the financial security of every American from the risks posed by the climate crisis. The Fed should commit to conducting annual stress tests to measure banks’ resilience to climate-related financial shocks, set capital requirements for assets vulnerable to climate losses, improve mandatory disclosure rules, and establish portfolio limits that require each financial institution’s holdings to align with science-based emissions targets. The Fed has a mandate to protect our economy from climate risk—we cannot allow regulatory neglect to lead us into another crash.

“The Federal Reserve Chair must be a leader in protecting Americans from the financial risks posed by unchecked climate change. If Jerome Powell hopes to be renominated by President Biden, he must prove that he can do more than just talk about climate—the Fed must take meaningful action to protect Americans from climate risk without delay."

On May 20th, 2021, President Biden issued an Executive Order directing his administration to develop a whole of government approach to identifying and mitigating climate-related financial risk—but that work has only just begun. The President’s order called for the Financial Stability Oversight Council (FSOC), which includes the Chairman of the Federal Reserve Board of Governors, to issue a report in the coming months recommending actions to reduce risks to financial stability.