Fed pulls out of international climate policy group

Federal Reserve

The Federal Reserve has withdrawn from the international policy group behind its recent push into climate scenario testing.

In a 5-0 vote on Thursday, the Fed's Board of Governors opted to leave the Network of Central Banks and Supervisors for Greening the Financial System, attributing the decision to the organization's widening policy ambitions.

"While the Board has appreciated the engagement with the NGFS and its members, the work of the NGFS has increasingly broadened in scope, covering a wider range of issues that are outside of the Board's statutory mandate," the Fed said in a written statement.

Regulation and compliance

Fed's climate scenario pilot is a waste of time and resources

February 3, 2023 11:01 AM

The NGFS is aimed at helping financial oversight bodies prepare their jurisdictions for the impacts of both climate change and related policy transition risks. Its main output is a set of scenarios for members to test financial institutions against. The Fed didn't detail what the network was planning beyond its stated goal.

It's the latest move in the financial world away from climate-change initiatives. In recent weeks, Goldman Sachs, Wells Fargo, Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase quit the Net-Zero Banking Alliance. The alliance is a U.N.-convened group of banks to align their lending, investment and capital markets activities to achieve net-zero greenhouse gas emissions by 2050.

The Fed's decision to exit the NGFS comes just days before Donald Trump is sworn in as the 47th U.S. president. While not explicitly political, the Fed's move aligns with several objectives of the incoming administration, including de-emphasizing climate policies and shunning international standard-setting groups. 

Still, the move does not represent a major departure for the Fed. Although Fed Chair Jerome Powell described climate change as "an emerging risk" to banks in 2020, in recent years he has maintained that the Fed is not — and does not seek to be — a climate regulator. 

"The Federal Reserve is not and will not be a 'climate policymaker.' Decisions about policies to address climate change must be made by the elected branches of government," Powell said in a written statement in October 2023. "Over time, we must be vigilant to avoid crossing or blurring that line. It is not the Fed's role to tell banks which businesses they can and cannot lend to, and this guidance is not intended to do so. The guidance clearly articulates this fundamental principle — an important addition to the proposal."

Founded in 2017, the NGFS is based in France and consists of more than 100 central banks and financial supervisors from around the world. The Fed joined the network in 2020 as a permanent member.

The Fed incorporated NGFS' scenarios into its 2023 climate scenario analysis exercise, an exploratory program that evaluated Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The exercise had no capital implications on the participating banks.

Two board members, Vice Chair for Supervision Michael Barr and Gov. Adriana Kugler, abstained from the withdrawal vote this week. 

Barr, who intends to step down from his post as the Fed's top regulator next month, had championed the scenario analysis as part of the central bank's "important but narrow" role in monitoring climate-related risks in the banking sector. 

Kugler, the newest member of the board, will see her term expire next January. President-elect Trump is not expected to renominate her.