Lael Brainard: Financial stability implications of climate change

Remarks (via webcast) by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System, at the "Transform Tomorrow Today" Ceres 2021 Conference, Boston, Massachusetts, 23 March 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I want to thank Ceres 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 effects will depend on the severity of the physical effects of climate change and the nature and speed of the transition to a sustainable economy. Financial market participants that do not put in place frameworks to assess and address climate-related risks could face significant losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition, or both. Conversely, robust risk management; scenario analysis; consistent, comparable disclosures; and forward plans can help ensure the financial system is resilient to climate-related risks and well positioned to support the transition to a sustainable economy.

Macroprudential and Microprudential Approaches

It is increasingly clear that climate change could have important implications for the Federal Reserve in carrying out its responsibilities assigned by the Congress.