US central bank falls further behind on climate action ahead of COP26

Washington, D.C., 29 October 2021

On the eve of the UN climate talks in Glasgow, Positive Money is set to release an update to its “Green Central Banking Scorecard,” a measure of the performance of central banks in addressing the threat climate change poses to economic and financial stability. This update shows that the U.S. Federal Reserve is falling even further behind on action to prepare the financial system for the climate crisis, missing a crucial opportunity for the Biden Administration to demonstrate global leadership at the climate talks.

The updated COP26 edition of the Green Central Banking Scorecard, has seen the US slip from 13th to 14th place, maintaining its D- grade since the first edition was published in March this year. India has jumped ahead of the US in light of the Reserve Bank of India joining the Network for Greening the Financial System and considering climate stress tests in addition to its pre-existing green credit guidance policy, leaving the US in joint 14th place, tied with Canada.

The US’s slide reflects a lack of progress from the Federal Reserve in implementing climate risk policies. The Federal Reserve is becoming even more of a laggard as other central banks start to move ahead. In particular, the European Central Bank, which outlined its climate strategy earlier this year, is now moving towards stronger measures like climate capital rules and restrictions on banks’ portfolios.

Akiksha Chatterji, Digital Campaigner at Positive Money US, said

“Central banks’ are moving too slowly with the Glasgow climate talks just around the corner, where finance is meant to be a focus. Amongst the slowest to make any progress is the Federal Reserve, the US central bank. Under Powell’s leadership, the Federal Reserve has cemented its position as a climate laggard among major central banks. The latest Financial Stability Oversight Council report was a small step in the right direction, but it doesn’t go nearly far enough. US regulators must urgently get on top of developing concrete steps to reduce the climate risks they’ve rightly identified as a major threat to financial stability.”

Yevgeny Shrago, Policy Counsel at Public Citizen’s Climate Program, said

“The Fed under Jerome Powell’s leadership continues to waste time that the financial system doesn’t have to prepare for the ongoing and growing threats from the climate crisis. Last week’s disappointing Financial Stability Oversight Council report fails to even consider steps like capital requirements or limits on fossil fuel investment and doesn’t set deadlines for even basic steps like issuing supervisory guidance on managing climate risk. 

That missed opportunity puts an exclamation point on just how little the Fed has done under Powell, who still insists its early days on climate, and how dangerous it is to stay the course with his leadership. With crucial climate finance talks kicking off this week, President Biden should demonstrate his commitment by selecting a slate of diverse Fed leaders who will take climate risk seriously and move the Fed from laggard to leader.”

The first edition of the Green Central Banking Scorecard reviews the full range of policies and initiatives that an ideal green central bank would adopt across four categories: Research and Advocacy, Monetary Policy, Financial Policy, and Leading by Example. Based on a literature review, expert consultation, and bilateral interactions with central bankers and supervisors, Positive Money developed a system to score and rank G20 countries on the climate policies and initiatives of their monetary and prudential authorities.

Other significant changes include China’s fall from 1st to 3rd place, as a consequence of its current domestic coal financing spree, and France’s rise to fill the top spot. France’s improved score mostly results from developments at the ECB, but the Banque de France marks itself out from its European counterparts primarily due to its responsible investment charter that includes a phaseout from fossil fuel investments. However despite topping the chart, France still only receives a ‘C’ grade, reflecting the huge work remaining for central banks to align financial systems with the climate goals governments have committed to. 

The International Energy Agency has warned that there can be no new oil, gas or coal development if the world is to reach net zero by 2050. Still, U.S. based banks continue to be the largest global drivers of emissions. The top four banks, all headquartered in the U.S.— JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America—have been the world’s largest funders of fossil fuels since the Paris Agreement was signed in 2015. The continued financing of fossil fuels puts the financial system at risk of another crisis far worse than the 2008 financial crash, and jeopardises alignment with a 1.5 degree pathway. 

Notes:

1. For more information or to speak with a spokesperson, please contact akiksha.chatterji@positivemoney.us or Akiksha Chatterji on +1-510-988-3230

2. Positive Money campaigns for a money and banking system which supports a fair, democratic and sustainable economy. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of over 65,000 supporters.