Fed Exits Climate Risk Network Just Before Trump Takes Office

The Federal Reserve announced on Friday that it is stepping back from a global network designed to address climate risk among financial regulators, coinciding with the transition as Donald Trump prepares to take office. Originally joining the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in December 2020, the Fed's earlier decision was praised by Democrats for recognizing the necessity of integrating financial sector risks related to climate change. However, skepticism arose from Republican lawmakers concerned that increased climate oversight could negatively affect banking customers. The NGFS facilitates the exchange of research and ideas among central banks on accounting for climate-related risks, and it aims to align financial systems with a sustainable economic transition. The Fed cited a broadening scope of the Network's work, leading to its decision to withdraw. "The work of the N.G.F.S. has increasingly broadened in scope, covering a wider range of issues that are outside of the Board’s statutory mandate,” the Federal Reserve communicated in its statement. The Board's vote to leave the network included participation from five members, including Fed Chair Jerome Powell. Meanwhile, two members abstained, amid changes in leadership, as vice chair for supervision Michael Barr announced his impending departure. This withdrawal comes as a notable reversal, particularly since the Fed had acknowledged climate change risks were becoming increasingly pressing due to the frequency of extreme weather events prior to its formal membership. Republican lawmakers had previously cautioned against the Fed's involvement, asserting that network recommendations could impose restrictions detrimental to key industries and hinder capital accessibility for businesses. As the Federal Reserve shifts its focus, the implications of this decision on the financial landscape and climate finance remain to be seen.