Dozens of green groups and 25 progressives in Congress sent a pair of letters Thursday to Federal Reserve Chair Jerome Powell calling for much bolder efforts to protect U.S. financial institutions and the economy from risks posed by the climate crisis.
"It's unthinkable that banks are still financing new fossil fuel development when we are crystal clear that we are on a path to climate chaos."
—Tracey Lewis, 350.org
The Fed recently joined the Network for Greening the Financial System, which has been called "the climate change club for central banks." However, as a new global scorecard from the group Positive Money reveals, the U.S. central bank has a long way to go. The Fed received a D-, ranking 11th overall and 13th among G20 countries.
"The Federal Reserve Board has a crucial role to play in protecting the economy and the public from material risks, including those from climate change, as you highlighted in your November 2020 press conference," the 64 groups write (pdf) to Powell.
While welcoming recent steps including the creation of the Supervision Climate and the Financial Stability Climate committees, the letter says that "we are concerned by indications that the board may not view climate-related financial risk as requiring urgent action."
Meeting the 1.5°C temperature goal of the Paris climate agreement, to which President Joe Biden has recommitted the United States, "will require rapid, dramatic changes in multiple sectors of the economy, which could threaten financial stability if not managed properly," the letter notes.
"Critical to mitigating both physical and transition climate risk is reducing financial institutions' support for high-carbon energy sources and redirecting finance toward sustainable alternatives," the groups assert, adding that "the board should not be in the business of rescuing fossil fuel companies without a plan to phase out their contributions to greenhouse gas pollution in accordance with a 1.5°C pathway."
The Fed talks about how its "early days" on climate change so often, it's starting to feel like Groundhog Day.
— Yevgeny Shrago (@yevshrag) April 1, 2021
Signatories to the letter included 350.org; Public Citizen, which released a supplement (pdf) to the Green Central Banking Scorecard detailing what the Fed can do; and Rainforest Action Network (RAN), a leading force behind a recent report revealing that big banks have poured over $3.8 trillion into fossil fuels since the Paris agreement.
RAN climate and energy senior campaigner Jason Opeña Disterhoft pointed out that "since the Paris climate agreement, U.S. banks are the world's four biggest lenders and underwriters to the fossil fuel industry, and six of the top 15, to the tune of $1.2 trillion over the past five years."
"Wall Street is driving the climate crisis, and therefore threatening the safety, soundness, and stability of the financial system," he added. "It's well past time for the Federal Reserve to stop sitting on its hands. The Fed must fulfill its mandate by using the full range of its tools to stop Wall Street fueling climate risk."
Tracey Lewis, senior policy analyst at 350.org, concurred. "It's unthinkable that banks are still financing new fossil fuel development when we are crystal clear that we are on a path to climate chaos," she said. "The Federal Reserve must do its job, steering the economy away from disaster by ending fossil fuel finance."
The results are in from the #GreenCentralBanking scorecard, and the US is failing.
The US scores 11/130, ranking 13th amongst the #G20.
— 350 US (@350_US) March 31, 2021
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The U.S. central bank's "abysmal grade" on the scorecard "is a warning call," said Yevgeny Shrago, policy counsel for Public Citizen's Climate Program. "The Federal Reserve is falling behind on addressing the threats from climate change—but with swift action, the U.S. can jump to the head of the class."
The groups' letter calls on the Fed to "accelerate action" in three core areas ahead of November's United Nations Climate Change Conference (COP26):
- Implement supervisory and prudential measures to increase the resilience of the financial system to climate risks and to reduce the risks to the economy and the planet the financial system creates by financing of fossil fuels and deforestation;
- Incorporate climate risk into the Federal Reserve's monetary policy; and
- Encourage and support bank investment aimed at limiting global temperature rise to 1.5°C, with a particular emphasis on lending to low-income communities and communities of color.
Led by Reps. Mondaire Jones (D-N.Y.) and Rashida Tlaib (D-Mich.), the lawmakers delivered a similar call to action, writing (pdf) that "without concrete objectives and measurable changes to the supervisory framework and monetary policy activities carried out by the Fed, we worry progress will be both too slow and insufficient in scale to adequately address the reality of the crisis our economy and our planet face."
While praising the recently created committees and raising concern about the Fed's portfolio decisions, the lawmakers' letter also endorses the advocacy groups' demands.
"We echo the calls made by climate activists and concerned citizens for further action to protect our financial system, our economy, and our planet from the devastating impacts of climate change," their letter to Powell says, providing the same action list. "We look forward to working with you to create financial institutions and an economy at large prepared for and resilient to the risks posed by climate change."
In an email to Morning Consult—which exclusively reported on both letters—Tlaib noted that Powell has previously been receptive to working with lawmakers.
"Given their financial stability objectives and supervisory role over financial institutions, the Fed clearly has the ability to incentivize and enforce a reduction in the financing of environmentally damaging activities," she said.
Jones told the outlet that he plans to "use every lever" at his disposal to address the issue, adding that "every institution must do its part to reduce carbon emissions and promote sustainability."
As for Republican efforts to block any related financial regulation, Jones said that the planetary crisis threatens the central bank's objectives to maximize employment, stabilize prices, and moderate inflation, "which is why the Fed can, and must, do more to prioritize climate action."
As we work to combat the climate crisis, every institution has a role to play, including the @federalreserve.
— Rep. Mondaire Jones (@RepMondaire) April 1, 2021
The letters came as Politico reported that Powell said Wednesday: "One of our goals is to make climate change a part of our regular financial stability framework."
Former Fed Chair and current Treasury Secretary Janet Yellen said during her first appearance as the head of the Financial Stability Oversight Council on Wednesday that climate change is "an existential threat" and "our financial system must be prepared for the market and credit risks of... climate-related events."
That warning was also a key message in a letter that 145 groups sent Tuesday urging U.S. Special Presidential Envoy for Climate John Kerry to help end "the flow of private finance from Wall Street to the industries driving climate change around the world—fossil fuels and forest-risk commodities."