What the Powell Fed will do (and what not) on climate change
Jerome Powell, chairman of the Federal Reserve, does not believe the central bank should play a direct role against investing in fossils. But things could change. Here because
Jerome Powell, the president of the Federal Reserve (the central bank of the United States), appears to be convinced that the climate crisis is also an important issue in the financial sphere. But – as Axios points out – he seems unwilling to think that his institute should act personally to counteract direct financing to polluting industries.
WHAT POWELL SAID TO THE SENATE
On Wednesday Powell gave a speech before the US Senate Banking Commission, saying the Federal Reserve will conduct an assessment of banks' readiness to handle climate change and analyze how climate change can pose a threat to financial stability.
“Our role on climate change is limited, but it is important. And it is to ensure that the banking institutions we regulate understand their risks and know how to manage them ”.
A LIMITED ROLE FOR THE FED
Despite this, Powell – nominated by former President Donald Trump, and confirmed by Joe Biden for a second term – does not envision the central bank playing an active role in helping redirect capital flows away from coal, oil or oil projects. natural gas.
THE REQUESTS OF ENVIRONMENTAL GROUPS
Conversely, some environmental organizations would like Federal Reserve intervention to limit investment in fossil fuels. Two of these, in particular – the Sierra Club and Evergreen Action – call for the introduction of limits to the fossil assets present within a portfolio.
THE ROLE OF POLITICS AND THE PRIVATE SECTOR, ACCORDING TO POWELL
The US Senate did not mention these proposals during Powell's hearing. Who, during a conversation with Republican Senator Kevin Cramer, made a significant statement: that "the broadest response to climate change must come from lawmakers and the private sector."
The protagonists must be politics and companies, in short: not the Federal Reserve. Whose job is to subject the big American banks to climate stress tests .
CLIMATE RISK FOR BANKS
"Climate stress scenarios," Powell said, "serve […] to ensure that large financial institutions understand all the risks they are running." Risks that, he added, "may be inherent to their business model".
THE POLITICAL ISSUE
Powell and the Federal Reserve are the subject of a political clash between the Democratic and Republican parties: the former generally wants the central bank to make a strong commitment in the fight against climate change, in line with the "green" agenda of the White House; the latter, in opposition, ask that the institution remain outside it.
THE POSSIBLE SCENARIOS
The Federal Reserve's stance, however, may be destined to change to become more interventionist: Biden has appointed Lael Brainard for vice-presidency and Sarah Bloom Raskin for vice-presidency of the oversight committee: both are very attentive to the climate issue.
Raskin, in particular – currently teaches law at Duke University – thinks that financial regulators need to ask "how their current tools can be used" to stimulate the transition from investing in emissive assets to environmentally sustainable ones. Quite different from Powell's thinking.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/jerome-powell-federal-reserve-cambiamenti-climatici/ on Sun, 16 Jan 2022 07:30:47 +0000.