For First Time, Federal Reserve Cites Climate as Financial Stability Risk

November 13, 2020

The U.S. Federal Reserve for the first time called out climate change among risks enumerated in its biannual financial stability report, and warned about the potential for abrupt changes in asset values in response to a warming planet.

“Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly,” Fed Governor Lael Brainard said in comments attached to the report, released Monday.

“Chronic hazards, such as slow increases in mean temperatures or sea levels, or a gradual change in investor sentiment about those risks, introduce the possibility of abrupt tipping points or significant swings in sentiment,” Brainard said.

Lael Brainard

Such abrupt price changes from climate-related disasters could also create difficult-to-predict knock-on effects through financial markets, the report said, particularly because not enough is understood, or disclosed, about the true extent of exposures to climate risks.

“Increased transparency through improved measurement and more standardized disclosures will be crucial,” Brainard said. “It is vitally important to move from the recognition that climate change poses significant financial stability risks to the stage where the quantitative implications of those risks are appropriately assessed and addressed.”

Monday’s report came just days after Joe Biden won the U.S. presidential election against President Donald Trump, who has downplayed the risks of climate change. Biden has promised to put fighting climate change back on the U.S. policy agenda.

(Reporting by Ann Saphir Editing by Alistair Bell)

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Latest Comments

  • November 13, 2020 at 9:12 pm
    Victory Loves Preparation says:
    I am glad the Federal Reserve is preparing for the economic impact of climate change. This country's military has been wisely preparing for climate change too. It is crucial t... read more
  • November 13, 2020 at 11:18 am
    Anti - ESG says:
    Yet no concern about the level of debt for the US or the World as an issue.....Speaks volumes

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