Board of Governors of the Federal Reserve System

Climate change poses significant challenges for the global economy and the financial system. The public rightly expects us to work to ensure the financial system is resilient to climate-related financial risks. We appreciate the magnitude of the challenges ahead of us and the Federal Reserve is committed to doing our part.

I want to thank FSOC for their work on this comprehensive report, which I support. Its recommendations highlight areas where additional work and coordination are needed to increase our collective understanding of climate-related financial risks. The report also emphasizes the need for consistent and comparable data and disclosures, something I particularly appreciate as fundamental to a rigorous and thorough analysis of climate-related risks.

The report cites scenario analysis -- where the resilience of financial institutions and the financial system are assessed under different hypothetical climate scenarios -- as an emerging tool in assessing climate-related financial risks. We at the Fed are developing a program of scenario analysis to evaluate the potential economic and financial risks posed by different climate outcomes.

The Federal Reserve will address climate-related risks in an analytically rigorous, transparent, and collaborative way. With the creation of the Supervision Climate Committee and the Financial Stability Climate Committee, we are working to better understand and address climate-related risks for financial institutions and the broader financial system. This work will provide the foundation for the development of an appropriate program to evaluate whether supervised firms are resilient to those risks. We will also continue to identify links between climate change and financial stability, including by investigating how climate change can increase financial-sector vulnerabilities and looking for climate-related amplification channels.

Given the global impact of climate change, the FSOC report stresses the significant work being done by international organizations, including the Network of Central Banks and Supervisors for Greening the Financial System, the Financial Stability Board, and the Basel Committee on Banking Supervision. The Federal Reserve is active and, in many cases, plays a leading role in the climate-related work being done by these institutions, and I am confident we will continue to contribute to and help shape these international efforts to address climate-related financial risks.

We will share our progress and look forward to coordinating with our FSOC colleagues in meeting the critical challenges outlined in the report. As we advance in our understanding of the financial stability risks associated with climate change and gain experience with policies to strengthen the system, we will continue to work together with our domestic and international colleagues to sharpen our responses.

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