Fed White Paper on Banks & Climate Risk
January 30, 2023
Banks remain in the spotlight for their critical role in the transition to a greener economy.
According to a Federal Reserve paper, the Global Systemically Important Banks (G-SIBs) have made some progress in both climate mitigation and adaptation efforts:
- Mitigation: G-SIBs intend to provide more green financing, with some stating that they would restrict financing to high-emissions industries; and
- Adaptation: Banks are developing more robust risk management strategies.
Yes, but: The paper finds that the banks must accelerate their transition if they are to meet their publicly stated climate goals. The authors note:
All told, despite some progress by large global banks to address climate change considerations, much work lies ahead to properly measure and disclose climate-related risks, and to better align financing activities with their net-zero targets.
Banks are in the unenviable position of having to balance the interests of many different parties. As reported in previous CREFC Policy and Capital Markets Briefings, Republican policymakers are targeting what they perceive as “woke capital,” and intend to grill bank executives on the actions they are taking in the name of climate change.
On the other hand, G-SIBs want to ensure they are appropriately positioned to manage climate risk and to respond to heightened regulatory demands. This year, for example, the six largest banks in the U.S. will undergo pilot climate exercises under the Fed’s supervision. And banks, along with the financial system in general, are awaiting final climate disclosure requirements from the Securities and Exchange Commission.
Contact Sairah Burki (sburki@crefc.org) with questions.