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Fed
Governor Lael Brainard, in remarks to an Institute of
International Finance forum on the move to a low-carbon economy,
said financial firms faced risks not just from weather-related
disasters, but also potentially fast changes in asset prices if
and when government policies change.
"While the scientific evidence for climate change is
unequivocal, estimates of the magnitude of climate-related
financial risks are highly uncertain," said Brainard, who is
spearheading the Fed's efforts to determine how the central bank
should incorporate climate considerations into its operations
and oversight of the financial system.
"This residual uncertainty should not stand in the way of making
prudent investments in risk-management practices in the near
term," Brainard said.
Central banks globally are trying to determine how climate
change should fit into their work. The economic impacts of
severe weather, for example, were hammered home even as Brainard
spoke, with a freak winter storm pummeling the energy grid in
Texas.
While the impact of that sort of "physical risk" is notoriously
hard to predict and may evolve over a longer time horizon, the
ongoing policy debate about how to arrest the global rise in
temperature could bring about its own sort of stress, she said.
"Unanticipated or abrupt shifts in policy, technology, or
investor sentiment have the potential to produce abrupt
repricing events that could result in losses on financial
institution balance sheets," Brainard said.
Different options are being studied for possible use in
supervision, Brainard said, including the development of a type
of scenario analysis that assesses how financial institutions
cope with long-term climate challenges.
"Standardized, reliable and mandatory disclosures could provide
better access to the data required to appropriately manage
risk," she said.
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)
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