Following a unanimous vote on December 7, 2020, the United States Board of Governors of the Federal Reserve System (Board) announced on December 15, 2020, that it has joined the Network of Central Banks and Supervisors for the Greening of the Financial System (Network or NGFS) as a member and, by so doing, joins 83 other members and 13 observers. While the Board had attended NGFS meetings in the past, it was the only major central bank (other than the Reserve Bank of India) to not be a member.

This action appears to anticipate the incoming Biden administration’s stated intention to rejoin the Paris Agreement, since the purpose of the Network is to:

“help strengthen[ing] the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development. To this end, the Network defines and promotes best practices to be implemented within and outside of the Membership of the NGFS and conducts or commissions analytical work on green finance.”

The action also responds to increasing calls for similar action in Congress (for example, the draft Climate Change Financial Risk Act of 2019 introduced by Senator Brian Schatz (D, HI) earlier this year.

Notably, the Board has not directly linked its membership in NGFS to regulatory initiatives for US financial institutions, as is generally understood to be the case with other forums, such as the Basel Committee on Banking Supervision and Financial Stability Board (FSB). However, Board Chair Powell has indicated that the Board is tracking global developments in this sector and is working to “make sure that the financial sector, the banks or the utilities that we supervise, are resilient against the longer-term risks from climate change.” While some organizations, including the FSB and Bank of England, appear to be adopting climate stress tests to address resiliency (see our earlier In Brief on the FSB report), there remains opposition in the United States to such actions.

More generally, the Biden administration is expected to engage significantly in this area. It remains to be seen if they will merely build off of or redirect existing efforts (see our Legal Update on the OCC’s recent fair access proposal) or lead entirely new initiatives in collaboration with groups such as the FSB and NGFS.