🔎 What’s going on?
US Federal Reserve (central bank) has signalled for the very first time that climate change could be shaping monetary policy.
👏 Sounds massive, let’s break it down...
Absolutely, at the first-ever climate change and economics conference held in San Fransisco, the Fed’s Governor Lael Brainard released a statement “To fulfill our core responsibilities, it will be important for the Federal Reserve to study the implications of climate change for the economy and the financial system and to adapt our work accordingly,”. This acceptance is huge, given that the US government denies the existence of climate change and has notified the UN of its intentions to officially withdraw from the Paris Agreement. It suggests that the Fed are taking climate costs and risks seriously.
Throughout the 10 sessions held, academic papers were presented outlining potential policies that could mitigate the climate crisis. Including a global carbon tax, a natural interest rate.
💸 Why should I care?
Money affects all of us - it is a promise to pay. But it relies on an effective payment system being in place through a digital (i.e. debit and credit cards and mobile services such as Apple pay) and/or physical (cash) means. Extreme weather events could leave many areas without power, which would cause economic losses but also affect people’s ability to access money through any digital means. In this case, cash is king. The Fed is trying to anticipate needs such as these ahead of time, so effective policies can be put into place in time.
The main purpose of this conference was to understand climate risks and focus on resilience (i.e. how should we prepare for a meltdown 😱) as a strategic tactic. Rather than mitigation (i.e. how can we reduce emissions). This is an important difference to note as the effort needs to be a delicate balance between both. We still have a small window of opportunity that should be focused on mitigation rather than resilience.
🚦Where do we need to be?
We need structural systemic change that transforms global market forces. To start with, Central Banks should be actively identifying and managing climate risks through disclosures from their financial sectors. Then solutions such as a global Green New Deal should be designed and implemented.
👤 What can I do about it?
As an individual, use your vote to bring leaders into power who can deliver a Green New Deal.
As a business, measure your carbon footprint and put an internal price on carbon. Then take actions to reduce your emissions.