Federal authorities are reportedly intimidated by Trump's actions
In a move that has raised eyebrows in the financial world, the Federal Reserve has withdrawn from the Network for Greening the Financial System (NGFS), a group dedicated to improving environmental and climate risk management in the financial sector. The reasons behind this decision remain unclear, but political pressure could potentially be a factor.
Meanwhile, other central banks are taking climate risks seriously. The Bank of England and the European Central Bank are stress-testing supervised firms, banks, and insurance companies for climate risk. Contrary to earlier statements, the Network for Financial Stability (NGFS) does not seem to have had a direct impact on economic and financial stability as of yet.
The NGFS, which covers 100% of global systemic banks and 80% of the internationally active insurance groups, has been instrumental in addressing climate risks. Its withdrawal by the Federal Reserve could have implications for the next four years and beyond.
The costs of climate change are on the rise, with global temperatures on track to rise well past 1.5°C above pre-industrial levels. These rising temperatures often manifest as climate-related disasters such as wildfires, storms, floods, and droughts, posing a significant threat to economic stability.
Swiss Re predicts GDP losses of 18% by 2050 if no action is taken. More alarmingly, the Institute and Faculty of Actuaries forecasts that climate change will mean global GDP losses of 50% between 2070 and 2090.
Elsewhere, the People's Bank of China is incorporating climate change into financial regulation and oversight, and developing green lending rules. This proactive approach underscores the importance of addressing climate risks to ensure economic and financial stability.
In light of these developments, it appears that the idea that central banks should not account for mounting climate risks is plain wrong. Economic and financial stability depend on ecosystem and climate stability. As such, it is crucial for central banks to take a more active role in addressing climate risks, rather than withdrawing from organisations like the NGFS.
Stuart P.M. Mackintosh, the executive director of the Group of Thirty, has not made any new statements regarding climate risks or their impact on global GDP or financial stability. However, his organisation's focus on international financial stability could potentially lead to more discussions on this critical issue.
In conclusion, the withdrawal of the Federal Reserve from the NGFS, coupled with the rising costs of climate change and the increasing threat of climate-related disasters, underscores the need for central banks to take a more active role in addressing climate risks. The future of our economy may well depend on it.
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