In brief
As President-elect Donald J. Trump prepares to take office, the Federal Reserve has announced its withdrawal from a climate-focused network of financial regulators, raising concerns over the future of climate risk management in the financial sector.
In a significant shift just days before Donald J. Trump takes office again, the Federal Reserve has formally announced its exit from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). This network, which focuses on assessing and mitigating climate-related risks within the financial sector, was joined by the Fed in December 2020 under President Joe Biden’s administration, a move that reflected an acknowledgment of the growing threat posed by extreme climate events to financial stability.Fed officials explained that the decision to depart from the NGFS stemmed from the group’s expanding scope, which increasingly covered topics beyond the central bank's statutory responsibilities. "While the Board has appreciated the engagement with the NGFS and its members, the work of the NGFS has increasingly broadened in scope," read a statement from the Federal Reserve on Friday, illustrating a shift in priorities.This withdrawal has raised eyebrows, particularly among climate advocates and some financial analysts who have been championing a greater focus on integrating climate risk into financial regulation. The NGFS operates to facilitate the sharing of research and strategies among central banks and regulators, aiming to mobilize mainstream finance for a sustainable economy.During its time as a member, the Fed garnered both support and pushback. The commitment to prioritize climate risk was seen as commendable by many, yet met with skepticism from Republican lawmakers who warned that such initiatives could impose burdensome regulations and limit access to capital for key industries. Five members of the Federal Reserve's Board of Governors voted for the withdrawal, with Fed Chair Jerome H. Powell among them. Notably, two members abstained from the vote, reflecting internal divisions regarding the central bank's role in climate risk management. While the Fed had previously engaged informally with the NGFS and recognized the critical nature of adapting financial practices to address climate-related risks, the decision to withdraw signals a potential regression in climate change accountability at the federal financial level during a politically transitional phase.
