1. I am grateful to Morgan Lewis, Beth Kiser, PCarrie Johnson, Diana Hancock, and Nami Mukasa, as well as Norah Barger, Angelyque Campbell, Benjamin Dennis, Carol Evans, Joseph Firschein, Michael Kiley, Molly Mahar, Nancy Riley, Glenn Rudebusch, John Schindler, Susan Stawick, Kevin Stiroh, Nicholas Tabor, and Aurite Werman of the Federal Reserve for assistance in preparing this text. Return to text
2. See Intergovernmental Panel on Climate Change, Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty (Geneva: Intergovernmental Panel on Climate Change). Return to text
3. See WMO Task Team, Global Warming and Hurricanes: An Overview of Current Research Results (Princeton: Geophysical Fluid Dynamics Laboratory, 2020); and The Intergovernmental Panel on Climate Change, Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation (Geneva: The Intergovernmental Panel on Climate Change, 2012), 44–48. Return to text
4. See "Billion-Dollar Weather and Climate Disasters: Overview," National Oceanic and Atmospheric Administration (NOAA) National Centers for Environmental Information. Return to text
5. See Russell Gold, "PG&E: The First Climate-Change Bankruptcy, Probably Not the Last," Wall Street Journal, January 18, 2019, https://www.wsj.com/articles/pg-e-wildfires-and-the-first-climate-change-bankruptcy-11547820006. Return to text
6. See "Sigma: Natural catastrophes in times of economic accumulation and climate change," Lucia Bevere and Michael Gloor, https://www.swissre.com/institute/research/sigma-research/sigma-2020-02.html. Return to text
7. See Bradley Hope and Nicole Friedman, "Climate Change is Forcing the Insurance Industry to Recalculate," Wall Street Journal, October 2, 2018, https://www.wsj.com/graphics/climate-change-forcing-insurance-industry-recalculate/. Return to text
8. See Michael Finney and Renee Koury, "Thousands of Homeowners in Fire Zones Are Losing Their Insurance,"ABC7 News, October 26, 2019, https://abc7news.com/insurance-companies-refusing-policies-in-wildfire-areas/5647865/. Return to text
9. See Matthew E. Kahn and Amine Quazed, "When Climate Change Leads to Mortgage Defaults," Bloomberg, October 3, 2019, https://www.bloomberg.com/opinion/articles/2019-10-03/when-climate-change-leads-to-mortgage-defaults. Return to text
10. See Matthew E. Kahn and Amine Quazed, "Mortgage Finance in the Face of Rising Climate Risk (PDF)," Working Paper 26322 (Cambridge: NBER, September 2019); and Jacob Bradt and Jesse Keenan, "Underwaterwriting: from theory to empiricism in regional mortgage markets in the U.S.," Climatic Change, June 4, 2020, 2034–2067, https://link.springer.com/article/10.1007/s10584-020-02734-1. Return to text
11. "Flood Insurance," FEMA. Return to text
12. See Mark Carney, "The Road to Glasglow (PDF)" (speech at Guildhall, London, England, February 27, 2020); and Climate-Related Market Risk Subcommittee, Managing Climate Risk in the U.S. Financial System (PDF) (Washington: Commodity Futures Trading Commission). Return to text
13. See Patrick Bolton, Morgan Despres, Luiz Awazu Pererira da Silva, Frederic Samama and Romain Svartzman, The Green Swan: Central Banking and Financial Stability in the Age of Climate Change (PDF) (Basel: Bank for International Settlements, January 2020). Return to text
14. See Francesc Ortega and Süleyman Taspinar, "Rising Sea Levels and Sinking Property Values: The Effects of Hurricane Sandy on New York's Housing Market," Journal of Urban Economics 106 (2018), 81–100. Return to text
15. See Manthos D. Delis, Kathrin de Greiff, and Steven Ongena, "Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank Loans," Research Paper No. 18-10 (Geneva: Swiss Finance Institute, January 10, 2018). Return to text
16. See Yongyang Cai and Thomas S. Lontzek, "The Social Cost of Carbon with Economic and Climate Risks (PDF)," Journal of Political Economy (September 2019), Vol. 127, No. 6. "The integrated assessment models (IAM) literature has recently studied the importance of climate tipping points, which refer to 'a critical threshold at which a tiny perturbation can qualitatively alter the state or development of [the climate] system,' and tipping elements, which are defined as 'large-scale components of the Earth system that may pass a tipping point' (both definitions from Lenton et al. 2008, 1786). A key feature of a tipping element is that current temperature affects the likelihood of a tipping element experiencing a tipping event—that is, a transition to an irreversible climate process, called a tipping process. Examples of tipping processes include the irreversible melting of the Greenland ice sheet, the collapse of the West Antarctic ice sheet, and the weakening of the Atlantic thermohaline circulation." Return to text
17. See Richard Mahony and Diane Gargiulo, "The State of Climate Risk Disclosure: A Survey of US Companies (PDF)," White Paper (Chicago: Donnelley Financial Solutions, 2019). Return to text
18. See Harrison Hong, Frank Weikai, and Jiangmin Xu, "Climate risks and market efficiency," Journal of Econometrics (October 2018). Return to text
19. See Task Force on Climate-related Financial Disclosures, 2020 Status Report (PDF) (Basel: Financial Stability Board, September 2020). Return to text
20. See Network for Greening the Financial System, Guide to Climate Scenario Analysis for Central Banks and Supervisors (PDF), June 2020. The Bank Policy Institute has noted, "it is important that research continues in this area and that banks continue to make advancements in their internal scenario analysis" and that "banks, central banks and supervisors partner with the climate modelers to ensure that expertise is shared across the disciplines," Francisco Covas, "Challenges in Stress Testing and Climate Change," Bank Policy Institute, October 19, 2020, https://bpi.com/challenges-in-stress-testing-and-climate-change/. Return to text
21. For example, Barrot and Sauvagnat find that firms experience an average drop of 2 to 3 percentage points in sales growth following a major natural disaster that hits one of their suppliers. See Jean-Noël Barrot and Julien Sauvagnat, "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics (August 2016): Vol. 131 No. 3, https://academic.oup.com/qje/article/131/3/1543/2461213. Bernstein et al. find that homes exposed to sea level rise sell for approximately 7 percent less than equivalent unexposed properties. See Asaf Bernstein, Matthew T. Gustafson, and Ryan Lewis, "Disaster on the Horizon: The Price Effect of Sea Level Rise," Journal of Financial Economics 134 (November 2019), https://www.sciencedirect.com/science/article/pii/S0304405X19300807. Hsiang et al. find evidence that the poorest third of U.S. counties experience damages of up to 20 percent of county income as a result of climate change. See Solomon Hsiang, Robert Kopp, Amir Jina, James Rising, Michael Delgado, Shashank Mohan, D.J. Rasmussen, Robert Muir-Wood, Paul Wilson, Michael Oppenheimer, Kate Larsen, and Trevor Houser, "Estimating Economic Damage from Climate Change in the United States," Science Magazine 356 (June 30, 2017), 1362 –1369. Return to text
22. Basel Committee on Banking Supervision, "Climate-related financial risks: a survey on current initiatives (PDF)," Survey (Basel: Bank for International Settlement, April 2020). Return to text
23. Network for Greening the Financial System, "WS-Bridging the data gaps workstream: Mandate and workplan from April 2020 to April 2022 (PDF)," September 3, 2020. Return to text
24. See Kevin Stiroh, "Emerging Issues for Risk Managers" (remarks at GARP Global Risk Forum, New York, NY, November 17, 2019). Return to text
25. See, for example, Australian Prudential Regulation Authority Letter, "Understanding and managing the financial risks of climate change (PDF)," February 24, 2020; Bank of England, Supervisory Statement | SS3/19 "Enhancing banks' and insurers' approaches to managing the financial risks from climate change (PDF)," April 2019; Bank of England, Prudential Regulatory Agency Letter, "Managing the Financial Risks from Climate Change (PDF)," July 19, 2020; and European Central Bank, Banking Supervision "Guide on climate-related and environmental risks: Supervisory expectations relating to risk management and disclosure (PDF)," November 2020. Return to text
26. Institute of International Finance Sustainable Finance Working Group, "Letter to the NGFS on Climate Risk Analysis and Measurement," December 16, 2019, https://www.iif.com/Portals/0/Files/content/Regulatory/12162019_iif_sfwg_climate_letter_to_ngfs.pdf. Return to text
27. See Kevin Stiroh, "The Basel Committee's initiatives on climate-related financial risks" (remarks at the 2020 IIF Annual Membership Meeting, Basel, October 14, 2020). Return to text
28. See Bank for International Settlements, "Basel Committee Publishes Stocktake Report on Climate-Related Financial Risk Initiatives," news release, April 30, 2020. Return to text
29. See Federal Reserve Bank of New York, "Reducing Climate Risk for Low-Income Communities," news release, November 19, 2020; and Jesse M. Keenan and Elizabeth Mattiuzzi, "Climate Adaptation Investment and the Community Reinvestment Act," Community Development Research Briefs (June 16, 2019). See also "Record of Meeting: Community Advisory Council and Board of Governors (PDF)," Federal Reserve, last modified on November 1, 2019. Return to text
30. See U.S. Global Research Program, Fourth National Climate Assessment, Volume II: Impacts, Risks, and Adaptation in the United States (Washington, D.C.: U.S. Global Change Research Program, 2018); Patrick Sisson, "In Many Cities, Climate Change Will Flood Affordable Housing," Bloomberg, December 1, 2020, https://www.bloomberg.com/news/articles/2020-12-01/how-climate-change-is-targeting-affordable-housing; and Eleanor Kruse and Richard V. Reeves, "Hurricanes hit the poor the hardest," Brookings Institution, September 18, 2017. Return to text
31. In the global development context, see Lael Brainard, Abigail Jones, and Nigel Purvis, Climate Change and Global Poverty: a Billion Lives in the Balance (Washington, DC: Brookings Institution Press, 2009). See also Department of Treasury, "U.S. Takes a Significant Step Toward a Clean Energy Future," news release, October 29, 2013. Return to text
32. See 12 CFR 228.12(g); and Kevin Dancy, "Weathering the Storm: A Framework for Meeting CRA Obligations," Community Development Publication (August 2018). Return to text
33. CA 06-5, CRA Consideration for Community Development Activities in Hurricanes Rita and Katrina Disaster Areas, February 24, 2006; CA 18-1, CRA Consideration for Community Development Activities in the U.S. Virgin Islands and Puerto Rico Following Hurricane Maria (PDF), January 25, 2018. Return to text
34. Board of Governors of the Federal Reserve, "Federal Reserve Board issues Advance Notice of Proposed Rulemaking on an approach to modernize regulations that implement the Community Reinvestment Act," news release, September 21, 2020. Return to text
35. See "Electronic Comment Form," Board of Governors of the Federal Reserve System, last modified on February 24, 2012. Comments may also be submitted by email to regs.comments@federalreserve.gov and include docket (R-1723) and RIN numbers (7100-AF94) in the subject line of the message. Return to text
36. See Lael Brainard, "Why Climate Change Matters for Monetary Policy and Financial Stability" (remarks at "The Economics of Climate Change" Research Conference, San Francisco, CA, November 8, 2019). See also Mary Daly, "Why Climate Change Matters to Us" (remarks at "The Economics of Climate Change" Research Conference, San Francisco, CA, November 8, 2019) and Glenn D. Rudebusch, "Climate Change and the Federal Reserve," (FRBSF Economic Letter, March 25, 2019. Return to text
37. See "Economic Risks of Climate Change: Implications for Financial Regulators," Federal Reserve Bank of San Francisco, last modified on December 4, 2020; Federal Reserve Bank of New York, "Reducing Climate Risk for Low-Income Communities," press release, November 19, 2020; "Virtual Seminar on Climate Economics," Federal Reserve Bank of Richmond; "Climate Change Economics," Federal Reserve Bank of Richmond, last modified on November 20, 2020; and Galina B. Hale, Òscar Jordà, and Glenn D. Rudebusch, "The Economics of Climate Change: A First Fed Conference" (December 2019). Return to text
38. Board of Governors of the Federal Reserve System, Financial Stability Report (Washington: Board of Governors, November 2020). Return to text
39. Board of Governors of the Federal Reserve System, Supervision and Regulation Report (PDF) (Washington: Board of Governors, November 2020). Return to text
40. A statement from several U.S. banks notes, "We agree...that the U.S. should join the Network for Greening the Financial System, so that U.S. financial regulators can leverage the shared learning of the international regulatory community in developing the appropriate approach to managing climate risk in the U.S. financial system." Citi, JP Morgan, and Morgan Stanley Joint Statement on CFTC Climate Report (PDF), September 2020. Return to text
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