Casten, Levin Lead 41 House Colleagues in Letter Urging Federal Reserve to Join Network for Greening the Financial System
Downers Grove, IL – Today, U.S. Representatives Sean Casten (IL-06) and Mike Levin (CA-49) led a letter signed by 41 of their House colleagues calling on the Federal Reserve to join the Network for Greening the Financial System (NGFS) as an active member. Eight central banks established the NGFS in December 2017 to meet the goals set forward in the Paris agreement and to protect the financial system against risks associated with the climate crisis. As the COVID-19 pandemic threatens financial markets around the world, Casten and his colleagues are pushing the Federal Reserve to join the NGFS and prepare for financial disruption as a result of the climate crisis.
"After seeing the impact that the spread of COVID-19 has had on our nation's financial system, we believe it is more important than ever to prepare for future external shocks. However, the COVID-19 pandemic will end, and we will be able to begin recovery and rebuild our economy. Climate change, on the other hand, is fundamentally changing the risks our financial system will have to face over the decades to come," the Members wrote. "We cannot allow the rest of the world to leave us behind in paving a path forward to address the economic impact of climate change. We ask you to help the United States take a leadership role in addressing the financial repercussions of climate change by joining the NGFS."
Click here or see below for the full letter:
Jerome H. Powell
Chair of the Board of Federal Reserve
20th Street and Constitution Avenue N.W.
Washington, D.C., 20551
Dear Chairman Powell:
We write to urge the Federal Reserve to join the Network for Greening the Financial System (NGFS) as an active member.
In October 2018, the United Nations Intergovernmental Panel on Climate Change (IPCC) released a report detailing the grave and imminent danger of failing to act immediately on climate change. The report found that we must limit global warming to 1.5?C to avoid catastrophic sea level rise, polar ice cap melting, and habitat destruction. Without rapid, unprecedented changes to all sectors of society, we will not be able to limit global warming to 1.5?C.
Climate change poses a systemic risk to our financial institutions, which will have to address the physical risks from extreme weather events and the transition risk associated with greenhouse gas emissions reductions. In 2019, there were 14 weather events that cost over $1 billion each in the United States, a significant increase over the annual average of 6.5 events between 1980 and 2019. These events will multiply as our planet warms and cause even greater economic losses. In addition, the IPCC estimates that energy-related investments will have to reach $830 billion to limit warming to 1.5?C. However, the cost of reducing emissions will be much lower than the costs of a world with 2.0?C warming, as more extreme weather will damage property, crops, and other assets.
Banks in the United States have exposed themselves to even greater risk by investing in the industries that will exacerbate the physical risk of climate change. Between 2016 and 2019, four American banks financed over $800 billion in fossil fuel investments, 30 percent of all global fossil fuel financing. Banks will also suffer losses with mortgages, agricultural loans, and commercial real estate from increased frequency of fires, floods, and hurricanes.
In response to these threats, eight central banks established the NGFS in December 2017 to meet the goals set forward in the Paris agreement. These countries acknowledge that "climate-related risks are a source of financial risk. It is therefore within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks." Today, there are 55 active members, including the central banks of Canada, China, Germany, and most European countries.
After seeing the impact that the spread of COVID-19 has had on our nation's financial system, we believe it is more important than ever to prepare for future external shocks. However, the COVID-19 pandemic will end, and we will be able to begin recovery and rebuild our economy. Climate change, on the other hand, is fundamentally changing the risks our financial system will have to face over the decades to come.
We are encouraged that the Federal Reserve has expressed interest in joining the NGFS. In her remarks at the Federal Reserve of San Francisco's first ever climate research conference, Federal Reserve Governor Lael Brainard stated that "we are in discussions about how we might participate in the Central Banks and Supervisors Network for Greening the Financial System in order to learn from our international colleagues' approaches to measuring and managing climate risks in the financial system."
We cannot allow the rest of the world to leave us behind in paving a path forward to address the economic impact of climate change. We ask you to help the United States take a leadership role in addressing the financial repercussions of climate change by joining the NGFS.
Sincerely,