Biden Administration's Fed Withdraws from Global Green Finance Alliance

The Federal Reserve (Fed) has withdrawn from the Network for Greening the Financial System (NGFS), an international group of central banks working to address climate-related financial risks. This move comes amid growing political polarization on climate change in the United States.

Launched in 2017, the NGFS has played a pivotal role in developing climate scenarios and guiding central banks' responses to the financial impacts of climate change. However, the Fed's decision to leave the NGFS raises concerns about the United States' commitment to addressing climate-related risks.

Political Headwinds for Climate Action

The Fed's withdrawal from the NGFS is seen as a sign of the changing political landscape in the United States. Former President Donald Trump was a vocal critic of climate action, and his administration rolled back environmental regulations. While the Biden administration has recommitted to fighting climate change, it faces opposition from Republicans and some members of the business community.

European Central Bank's Climate Agenda

Despite the Fed's withdrawal, the NGFS remains committed to its mandate. The European Central Bank (ECB) has emerged as a leader in integrating climate considerations into its operations, including via stress tests and adjustments to its bond purchase program.

ECB Faces Criticism

However, the ECB's proactive stance on climate has drawn criticism from some European politicians and even central bankers. Some argue that the ECB is overstepping its mandate by focusing on climate issues, which they believe should be addressed by governments.

Calls for Continued ECB Leadership

Despite these criticisms, experts urge the ECB to continue its leadership on green finance. They argue that managing climate risks is essential for financial stability and economic growth. A draft report by the European Parliament's economic affairs committee supports the ECB's climate-focused stress tests but emphasizes the need for apolitical monetary policy.

Conclusion

The Fed's withdrawal from the NGFS highlights the political challenges facing global efforts to address climate-related financial risks. While the ECB remains committed to climate action, political headwinds and criticism from within the central banking community could limit its progress in this area.