In a Summer of Climate Chaos, Fed Summit Ignores Risk of Climate Crisis to Global Economy

Today, over 70 international, national and state/local organizations released an open letter to the Federal Reserve and central bankers attending this year’s Jackson Hole Economic Policy Symposium. The letter calls on symposium participants to act quickly and vigorously to address recent escalations in climate-related financial risks. In remarks this morning, Federal Reserve Chair Jerome Powell omitted any mention of climate-related financial risks in his Jackson Hole speech.

The open letter notes that climate change impacts are outpacing authorities’ current efforts to address climate change financial risks. This is evidenced by escalating costs of physical risks and growing gaps in insurance coverage, among other things.

Policy makers, especially in the banking and insurance sectors, must:

1. Adopt a precautionary approach to risk mitigation, given climate change’s tipping points and unpredictable tail risks. This could include capital adjustments and other mechanisms to properly reflect the risk of fossil fuel production and thus facilitate a transition;
2. Design capital buffers that specifically take into account the systemic risks of climate change;
3. Require the use of forward-looking tools, such as transition plans, which can help both authorities and market participants better understand and mitigate their own climate-related transition risks, as well as improve understanding of aggregated, systemic risks and promote accountability.

Elizabeth Jacobs, a Sustainable Finance Specialist at E3G said: “Jackson Hole is a unique setting, and not only for its natural beauty. At the 2005 Jackson Hole Symposium, warnings about risks building up in the financial system were minimized. Within the next 5 years, the Global Financial Crisis ensued, and policy makers were promptly consumed with giving themselves new authorities designed to avert future crises. Using precautionary approaches and transition plans can help avoid a ruinous rinse, wash, repeat cycle.”

Alex Martin, Climate Finance Policy Director at Americans for Financial Reform Education Fund said: “Financial regulators have put in increasing effort in recent years to try to understand and better manage climate risk, but unfortunately, climate change is vastly outpacing their progress. Precious little time remains to get ahead of the risk as insurers flee vulnerable areas and banks respond in kind. Resigning ourselves to merely picking up the pieces after climate-driven financial disruptions and crises unfold—which is where we are headed—is utterly unacceptable. Regulators must double down now."

David Arkush, director of Public Citizen’s Climate Program, said: “It is shocking that this symposium, which purports to address structural shifts in the global economy, does not include a single agenda item on the climate crisis or climate solutions — some of the most important drivers of change in the global economy and most significant sources of risk to global financial stability. Rather than stand by as the next global financial crisis develops, the top officials and economists at this conference should be actively considering responses and solutions. And the officials should adopt assertive policies that shepherd the economy and financial system swiftly and safely through the tumultuous climate-related transitions that are already underway.”

Jackie Fielder, co-director of Stop the Money Pipeline coalition said: “Any symposium entitled ‘Structural Shifts in the Global Economy’ without a single mention of climate disasters and the billions they have cost everyday people and local economies, should concern every American with a pension who agrees that climate change is here.”

Akiksha Chatterji, lead campaigner at Positive Money US said: "Regulators are failing to act at the scale or pace necessary to curb the significant financial stability threats arising from climate change and fossil fuel financing. Rest assured, climate risks will materialise and we simply cannot quantify the precise nature and timing of these impacts as they are complex and ever changing. Emergency measures taken after a climate-driven financial crash may not suffice to contain such a meltdown. It’s time for the regulators and officials at this symposium to adopt a precautionary approach to climate and do their jobs before another financial crisis ensues."