The Fed will copy Europe on climate policy, despite Trump

While other central banks have started to grapple with climate change, the Federal Reserve has been conspicuous by its absence. But as green shoots begin to emerge in the US, the Fed will not be able to ignore the topic for much longer.

  • By Jasper Cox
  • 02 May 2019
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Unlike its counterparts across Europe, and every other continent bar Antarctica, the Fed has so far failed to join the Central Banks' and Supervisors' Network for Greening the Financial System (NGFS).

Although central banks are supposed to be apolitical, they are swayed by national political culture, just like any other institution. So when US president Donald Trump looked poised to nominate Stephen Moore to the board of the Fed, it was easy to see why central bankers in the US might be keeping shtum about climate change. 

Moore has called global warming “the biggest scam of the last two decades”. He withdrew his candidacy on Thursday after criticism mounted over his past writings about women. 

Also bear in mind Trump’s attacks on Fed chair Jerome Powell after the bank tightened policy last year, which would have been startling coming from any other recent president.

Others in sustainable finance have indicated to GlobalCapital that they are wary of rocking the boat by speaking out about the US's blind spot on climate change.

Nevertheless, attitudes are shifting in the Federal Reserve network. And this will seep up to the top.

Glenn Rudebusch, senior policy adviser at the San Francisco Fed, caused a stir last month with a letter on climate change. “Volatility induced by climate change and the efforts to adapt to new conditions and to limit or mitigate climate change” were “increasingly relevant considerations” for the Fed, he said.

The economist pointed to the risks of weather events causing loan losses for banks, the transition to low carbon technology leaving fossil fuel assets stranded, and climate change affecting the output growth rate and the real interest rate.

The article was not transformational by European standards. Bank of England governor Mark Carney linked climate change to financial stability in 2015. But it came from an official in the US, not in Europe.

GlobalCapital understands that members of the San Francisco Fed also went to Paris for the latest NGFS meeting this month, although the bank did not reply to confirm this.

Of course, the San Francisco Fed is based in liberal California. There, the insurance commissioner has already analysed climate-related physical and transition risks to insurers. But the bank covers eight other states as well.

US institutions are also active in research on the area. For instance, ClimateWorks Foundation, a US-based charity, has set up a programme called Inspire, which is taking in submissions for research on central banks, supervision and greening the financial system.


Inspiration from Europe

Writing letters, publishing research, hobnobbing at conferences: it is hardly activism of the Extinction Rebellion variety, or hard policy of the kind the EU is looking at. But the Federal Reserve is on a path towards taking climate change seriously.

From 2021, the resident of the White House could well support the 'Green New Deal', a proposed stimulus programme which mixes climate change policy with a raft of other areas of government activity. This could give the Fed political cover to incorporate greening into its work, too.

But even if a Republican or right-wing Democrat takes charge, the science on the financial risk of climate change will be undeniable. While much of the media and political class in the US inhabit a post-factual haze, clear-eyed investors and number crunchers do not.

And when the Fed does get involved, it will look across the Atlantic for what to do, given Europe’s leadership in this area.

“As and when the US policymakers do wake up and smell the plastic in the oceans, Europe will be there as an example to follow,” said a senior finance official based in the US, who did not want to go on the record because of the sensitivity of the topic.

What a change from other areas of finance since the crisis, where Europe has been the laggard. This includes regulation, where the US got its banks to beef up their capital levels much more thoroughly.

But that is a mere footnote. The more important point is how much damage to the climate will already be irreversible by the time the most important central bank in the world gets on board.

  • By Jasper Cox
  • 02 May 2019

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 220,923.99 993 8.24%
2 Citi 207,414.87 865 7.74%
3 Bank of America Merrill Lynch 170,992.39 718 6.38%
4 Barclays 161,566.17 657 6.03%
5 HSBC 132,739.21 719 4.95%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 BNP Paribas 27,275.91 109 7.96%
2 Credit Agricole CIB 25,297.00 103 7.39%
3 JPMorgan 21,834.93 53 6.37%
4 Bank of America Merrill Lynch 21,222.68 53 6.20%
5 SG Corporate & Investment Banking 16,639.52 78 4.86%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 7,363.27 46 9.68%
2 Morgan Stanley 7,283.40 35 9.57%
3 Goldman Sachs 6,673.27 34 8.77%
4 Citi 5,594.80 40 7.35%
5 UBS 4,691.07 23 6.17%