Federal Reserve to Roll out Climate Scenario Analysis Pilot Program for Banks
Six banks to participate in climate scenario analysis that will investigate their exposure to climate-related financial risk
WASHINGTON, D.C. — Six large banks will assess their exposure to risk caused by climate change as part of a pilot program, the Federal Reserve announced today. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo will take part in the pilot climate scenario analysis exercise, which will begin in early 2023, and will analyze the impact of scenarios on specific portfolios and business strategies.
In response, David Arkush, managing director of Public Citizen’s Climate Program, issued the following statement:
“Every sector of the global economy will be impacted by the climate crisis. The scenario analysis these six banks will conduct is long overdue. The Fed’s decision to require it is a welcome first step in developing a better understanding of long-term climate-related financial threats—and identifying what they mean for today’s and tomorrow’s actions.
“To gain useful insights from this exercise, it’s critical to use the right scenarios. We look forward to working with the Fed as it develops them.
“Greenhouse gas pollution has created tremendous uncertainty for communities, individuals and, inevitably, financial institutions of all sizes. What is certain is that the climate crisis and the clean energy transition, if managed poorly, poses enormous risks to financial stability and the health of our economy. The particulars of the threats are difficult to model reliably, the risks are exceedingly grave, and their likelihood of materializing is high. In that situation, the right response is to adopt a precautionary approach and err on the side of safety. We urge the Fed, as it builds capacity and conducts exercises to understand climate-related risks better, to move swiftly toward measures that mitigate the risks.