Fed isn't seeking to make climate policy, Powell says

WASHINGTON — The Federal Reserve is well positioned to assess climate change risk to the financial system but should steer clear of setting actual climate-related policy, Fed Chairman Jerome Powell said Friday.

Powell said Friday at a virtual event that elected officials need to determine climate policies, while the Fed can ensure that the financial system can weather shocks to the system as a result of climate change.

“Central banks clearly can play an important role in building data and analysis to understand the macroeconomic consequences of climate change to quantify the risk to the financial system, through scenario analysis, for example, and to ensure the resilience of the financial sector to climate change,” he said at the event, sponsored by the Bank for International Settlements, Bank of France, International Monetary Fund and Network for Greening the Financial System.

“We will communicate all of that publicly," he added. "But we are not and we do not seek to be climate policymakers.”

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Powell’s comments come in the midst of growing political tensions in the U.S. over financial regulators’ role in mitigating the impact of climate change. Democrats have pushed regulators to take a more active role in protecting banks and other firms from losses tied to extreme weather events. Republicans have argued that climate policy is outside financial regulators’ jurisdiction.

Sen. Pat Toomey, R-Pa., the top Republican on the Senate Banking Committee, has criticized regional Federal Reserve banks for their research related to climate change, describing it as "mission creep."

Powell said the Fed can play a role in educating the public about the risks associated with climate change to help inform elected officials' policy decisions.

“We should avoid trying to fill in public policy where governments haven't done so yet,” Powell said. “That's not up to us. But nonetheless, I do think our work can indirectly help educate the public on what's going on and … inform other parts of the government in the actions that they are assigned to assess.”

Powell weighed in on a number of actions that U.S. regulators are currently considering as they determine their role in addressing climate change, including climate scenario analysis and climate risk disclosures.

Powell said that the Fed hasn’t determined whether it will move forward with a climate scenario analysis regime, but that climate scenario analysis provides valuable information to financial institutions.

“If you look across central banks, and actually what large regulated financial institutions are doing, climate scenario analysis is emerging as one of the principal tools for assessing the risks of climate change … and highlighting risks,” Powell said.

As the Securities and Exchange Commission is evaluating potential rules requiring all companies to disclose their contributions and exposure to climate change, Powell said that financial institutions and policymakers would benefit from consistent disclosure standards.

“We need to have the data, and it needs to be disclosed in a manner that is helpful in understanding the risks of climate change,” Powell said. “The ideal will be standardized disclosure that is highly informative and consistent across jurisdictions.”