The Federal Reserve said Friday it was withdrawing from a network of global financial regulators focused on the risks of climate change just days before President-elect Donald J. Trump returns to power.
Central Bank formally joined A network of central banks and supervisors to green the financial system in December 2020, shortly after President Biden was elected. Democrats praised the decision, arguing that regulators need to ensure that financial institutions adequately manage the risk they face from extreme weather events.
But Republican lawmakers immediately blasted the Fed for joining the network, saying the central bank had exceeding his congressional mandatewhich requires it to keep inflation stable and the labor market strong. They expressed concern that the Fed, which oversees the nation’s largest banks, could try to discourage financial institutions from lending to oil, gas and coal producers or other fossil fuel-intensive companies.
The Network of Central Banks and Supervisors on Greening the Financial System, or NGFS, was established to help central banks and other regulators share ideas and research as they understand how to account for climate-related risks in the financial sector. The network also aims to “mobilize mainstream finance to support the transition to a sustainable economy.”
While the Fed initially supported the network’s goals, the central bank said ua statement on Friday, she decided to leave after the group’s work “expanded in scope, covering a wider range of issues beyond the committee’s statutory mandate.”
The decision was not unanimous. Five of the seven governors on the Fed’s board voted to withdraw from the network, including Fed Chairman Jerome H. Powell. Adriana Kugler and Michael S. Barr abstained. Mr. Barr recently announced that he would depart from his role as vice president of oversight until February 28.
The network said so “regrets, but respects” The Fed’s decision to abandon its “coalition of the willing.”
Yann Marin, the network’s secretary general, wrote in an email that it is true that the scope of the group’s work has expanded “as our understanding of financial stability risks arising from climate and natural events has improved.” He added that its work is guided only by financial risks and their consequences for financial and price stability.
The network was created in December 2017, months after Mr. Trump announced, during his first presidential term, that the United States would withdraw from the Paris climate agreement.
“We are again facing political winds, and the work of these traditional international organizations is becoming more and more difficult,” said Mr. Marin. “The NGFS will lead the way by fulfilling its mandate, despite the bumps in the road.”
The Fed’s move to join the network was seen as an acknowledgment by the central bank that it needs to start taking into account the impact of extreme weather events as they become more frequent and pose a greater risk to the financial system. The Fed has informally participated in the network for over a year.
Republicans are tough criticized the central bank’s increased attention to climate-related risks in recent years, accusing the Fed of “climate activism.” Days before the Fed officially joined the network, a group of Republican lawmakers expressed concern about the Fed’s involvement in the group. Its recommendations “could significantly limit access to capital for key industries and place harmful restrictions on regulated entities,” the lawmakers wrote in a December 2020 letter to Fed officials.
Unlike the European Central Bank, which has hugged role in the transition to a low-carbon economy, Mr. Powell has long argued that dealing with climate is the responsibility of Congress, not the Fed.
In November, the Fed refused to support the plan designed by the Basel Committee on Banking Supervision, a global financial standard setter that includes the world’s major central banks, which would force lenders to disclose climate risk in their portfolios. In 2021, Fed staff he wrote it “lack of transparency around climate-related risks can increase vulnerabilities related to asset valuations, financial and non-financial leverage, and contagion risk.”
The news of the Fed’s decision to leave the grid was met with consternation by experts on the relationship between climate change and the financial system. Lisa Sachs, director of Columbia University’s Center for Sustainable Investment, noted that membership has not forced the Fed to take action outside of its statutory mandate.
“The Fed’s withdrawal reflects a growing trend of the US withdrawing from a position of leadership and cooperation in multilateral forums, pushing the US aside and leaving leadership to other nations to take up the mantle,” Ms. Sachs wrote in an email.
Sarah Bloom Raskin, former governor of the Fed, called this move “both substantively and symbolically significant.”
“Withdrawing the Fed’s participation in climate talks among the world’s central bankers further undermines our country’s prospects for assessing and managing climate risk without ideological blinders,” Ms. Raskin wrote in an email. “The symbolism of this move in early 2025 is ominous.”
