U.S. central bank says climate change poses stability risk
WASHINGTON – The U.S. Federal Reserve for the first time called out climate change among risks enumerated in its biannual financial stability report, and warned about the potential for abrupt changes in asset values in response to a warming planet.
“Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly,” Fed Governor Lael Brainard said in comments attached to the report, released Monday.
“Chronic hazards, such as slow increases in mean temperatures or sea levels, or a gradual change in investor sentiment about those risks, introduce the possibility of abrupt tipping points or significant swings in sentiment,” Brainard said.
Such abrupt price changes from climate-related disasters could also create difficult-to-predict knock-on effects through financial markets, the report said, particularly because not enough is understood, or disclosed, about the true extent of exposures to climate risks.
“Increased transparency through improved measurement and more standardised disclosures will be crucial,” Brainard said. “It is vitally important to move from the recognition that climate change poses significant financial stability risks to the stage where the quantitative implications of those risks are appropriately assessed and addressed.”
Monday’s report comes just days after Joe Biden won the U.S. presidential election against President Donald Trump, who downplayed the risks of climate change. Biden promised to put fighting climate change back on the U.S. policy agenda. (Reuters)