Why Climate Risk Matters to Us
How is climate risk connected to the San Francisco Fed’s mission?
The Federal Reserve’s job is to promote a healthy, stable economy. This requires us to consider current and future risks—whether we have a direct influence on them or not. Climate change is one of those risks.
The impacts of a changing climate—including the frequency and magnitude of severe weather events—affects each of our three core roles:
- Conducting monetary policy
- Regulating and supervising the banking system
- Ensuring a safe and sound payment system
In order to meet our mission, we need to study and understand how a changing climate may disrupt the safety and soundness of our economy and financial and payment systems. In turn, we’re assessing how to incorporate these findings into our core functions and mandates, focusing on research, supervision, community, and operations.
What are the economic impacts of climate risk?
Climate risk manifests through physical risks—such as the loss of a physical asset due to storms or rising sea levels—and transitional risks associated with the transition from a high-carbon economy to a low-carbon one, including new technology, policies, consumer preferences, regulation, and market sentiment. These risks challenge the resiliency of the firms we supervise and the communities we serve along with their ability to withstand climate impacts, particularly in the case of low-and moderate-income communities and communities of color.
How we’re responding to climate risk
Here at the SF Fed, we’re on a journey to understand climate risk and resilience implications on the economy and financial and payment systems while taking stock of our own climate impacts. We are doing this by focusing on research, banking supervision, community, and operations.
Research: Understanding the economic impact of climate risk
Our Economic Research team has established a dedicated Sustainable Growth team that focuses on assessing the effects of a changing climate on the economy. Additionally, the team is participating in the research workstream for the Network for Greening the Financial System (NGFS).
Key research events and publications:
- How Are Businesses Responding to Climate Risk? (2022)
- Strategies for Equitable Finance (2021)
- Climate Change and the Federal Reserve (2019)
- The Economics of Climate Change Conference (2019)
Supervision: Assessing climate risk with our banking partners
Our Supervision + Credit team is in the early stages of understanding climate-related risks and how climate change and the financial system interact. We are engaging with large banks to strengthen our understanding of how they assess climate risks and incorporate climate-related physical and transitional risks into their risk management frameworks.
How we are learning:
- Supervision Climate Committee, which brings together senior staff from the Federal Reserve Board and Reserve Banks across the System to ensure supervised firms are resilient to climate-related financial risks
- Financial Stability Board
- Basel Committee’s Task Force on Climate-Related Financial Risks
- Network for Greening the Financial System
Community: Building equitable climate resilience
Given our commitment to promoting an economy that leaves no one behind, we also need to understand the disparate impacts of climate change on low- and moderate-income communities (LMI) and communities of color in the Twelfth District. To that end, we are engaging with governments, businesses, community-based organizations, and individuals in our District to learn firsthand how climate change is affecting their day-to-day lives and livelihoods.
Our Community Development team is focusing on helping communities understand climate risk and strategies for developing equitable community resilience to ensure all communities, including LMI communities and communities of color, have what they need to thrive and remain economically stable in the face of climate-related events.
Operations: Mitigating our climate impact
The Fed is not involved in climate mitigation policies. However, we realize our operations and the environment are interconnected—and this interconnection has an impact on everyone. Through the cross-functional work led by our Social Responsibility team, we are doing our part to mitigate carbon in our operations and avoid future emissions.
To that end, the Bank has a long-standing sustainability program dedicated to continuous improvement and investing in renewable technologies. Through the cross-functional work led by our Social Responsibility team, we are currently measuring carbon in our operations and supply chain and developing guidance on how to lessen our environmental impacts.
- Measure carbon in our operations and supply chain
- Determine opportunities for environmental efficiencies
- Develop guidance on how to lessen our environmental impacts
Community Development Research Brief
Climate-Related Risks Faced by Low- and Moderate-Income Communities and Communities of Color: Survey Results
Climate Change Costs Rise as Interest Rates Fall
Climate Risk and the Fed: Preparing for an Uncertain Certainty
December 16, 2021, Virtual Seminar on Climate Economics
Presenter: Ben Groom, London School of Economics
January 13, 2022, Virtual Seminar on Climate Economics
Presenter: Sir David Hendry, University of Oxford
For more information about our climate risk work, please reach out to us at firstname.lastname@example.org