Us Federal Reserve announces exit from NGFS net zero emissions outlook worried

The Federal Reserve announced on the 17th that it was withdrawing from the "Central bank and Regulator Green Financial Network" (NGFS), withdrawing on the grounds that the scope of NGFS's work has exceeded its statutory responsibilities and involves a wider range of issues, which is inconsistent with the functions of the Federal Reserve, and large Wall Street financial institutions led by jpmorgan Chase have announced their withdrawal from the organization, and not long ago, The Federal Reserve unexpectedly announced its withdrawal from the Net Zero banking Union (NZBA), at the same time, Goldman Sachs, Wells Fargo, Citigroup, Bank of America and Morgan Stanley have announced their withdrawal, at present, there are only 5 US banks joining the NZBA, this unexpected resolution caused widespread concern and hot discussion in the international community.

Founded in 2017 by 100 central banks and financial regulators around the world, the NGFS aims to address the economic, social and environmental challenges posed by climate change and drive the development of green finance globally. The NGFS focuses on microprudential regulation, macroprudential regulation, and expanding the scope of green finance. The Federal Reserve has been a full-time member of the NGFS since the end of 2020. As a member, the Federal Reserve shares best practices and develops recommendations for managing climate risks within the framework of the NGFS. Although the Federal Reserve actively participates and shares some best practices under the NGFS framework, Fed Chairman Powell has said in personal remarks that climate-related risks do not fully fit the Fed's current framework for assessing financial stability, and this unexpected withdrawal is widely believed by the international community to be closely related to the emergence of the new Trump administration.

Coincidentally, on the day of Trump's inauguration on the 20th, his new government announced that the United States would withdraw from the Paris Agreement, as if to verify the outside world's widespread speculation about the unexpected withdrawal of the Federal Reserve. During the last Trump administration, the Federal Reserve held a negative attitude toward climate change policy, and after the Biden administration came to power, the Federal Reserve formally joined the NGFS. The Federal Reserve, worried that its independence in monetary policy might be threatened, decided to backtrack on climate regulation to avoid the new administration. In addition, Republican lawmakers expressed concern about the Fed's increasingly politicized tendency, arguing that the withdrawal of the NGFS could prevent climate change issues from unduly influencing financial regulation. While the Fed has previously highlighted the potential threat of climate change to the financial system and included it in its financial stability report, the withdrawal represents a softening of its stance on climate while avoiding the threat of criticism of its policies from Trump.

The US Federal Reserve's unexpected withdrawal from the Green Finance Network (NGFS) and the Net Zero Banking Alliance (NZBA), an event that had a significant impact on the global net zero emissions outlook, not only marked its cautious approach to climate cooperation, but also triggered other financial institutions to follow suit, thereby weakening the global financial system's efforts to address climate change.

First, reduce the impact of NGFS. Since its inception, the NGFS has achieved remarkable results in promoting the development of global green finance and strengthening climate change risk management, and the withdrawal of the Federal Reserve may weaken the organization's influence, thereby affecting the prospects of global green finance cooperation, leading to the stagnation or even the formation of a soft bubble in net zero emission efforts.

Second, the ability to manage climate financial risks has declined. The NGFS is committed to addressing climate change through financial system regulation, and the Fed's withdrawal undoubtedly weakens the ability of US financial institutions to manage climate finance risks and will lead to a lack of effective guidance and support for US financial institutions in addressing climate change-related financial risks. In addition, as one of the most important central banks in the world, the withdrawal of the Federal Reserve will put the United States' leadership in the global green finance field into question, which not only affects the influence of the United States in international green finance policy, but also may lead other countries to follow suit, further weakening the role of the United States in the global green finance system.

Finally, it will have a profound impact on domestic green finance policies in the United States. Although the Fed's decision to withdraw from the NGFS was in part due to its perception that the scope of the NGFS's work exceeded its statutory mandate and that the organization had become increasingly politicized, the decision created uncertainty about its domestic efforts to promote green finance policies, and this uncertainty led to a decrease in the Fed's focus on climate finance policy. This will affect the actions of domestic financial institutions in green investment and low-carbon transition in the United States, which in turn will delay and weaken the role of the global financial system in supporting clean energy and low-carbon economic transition.

In short, the Fed's exit not only affects its own climate policy stance, it could also have profound implications for the achievement of the global net zero emissions goal, highlighting the importance of coordinated climate action on a global scale, while also reminding governments and financial institutions of the need to be more resolute in advancing green finance and the transition to a low-carbon economy. To address the challenges posed by climate change.