The role of financial institutions in tackling the challenges of climate change

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I want to thank the Institute of International Finance for inviting me to join this discussion. Let me start by noting that these are my own views and do not necessarily reflect those of the Federal Reserve Board or the Federal Open Market Committee.

Climate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad. Future financial and economic impacts will depend on the frequency and severity of climate-related events and on the nature and the speed at which countries around the world transition to a greener economy.

Climate change and the transition to a low-carbon economy create both risks and opportunities for the financial sector. Financial institutions that do not put in place frameworks to measure, monitor, and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy, or by a combination of both. Conversely, robust risk management, scenario analysis, and forward planning can help ensure financial institutions are resilient to climate-related risks and well-positioned to support the transition to a more sustainable economy.

Making Progress on Climate Change

The economic consequences of climate change are already in evidence. There is growing evidence that extreme weather events related to climate change are on the rise-droughts, wildfires, hurricanes, and heat waves are all becoming more common.4

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