Read the full story at Vox.
The US Federal Reserve is running its very first climate change experiment.
The central bank this month announced details about how it will conduct a “pilot climate scenario analysis exercise” involving the six largest US banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.
The Fed basically wants major banks to game out how they’ll handle climate change-related shocks. For example, what would happen to their real estate holdings in the northeastern United States under a future hurricane when sea levels are higher? These scenarios are grouped together in the exercise as “physical risks.”
Then there are “transition risks”: How will financial institutions cope with a wholesale shift away from fossil fuels toward cleaner energy? What will happen to their investments in coal mines or gas plants? How will loans fare when customers turn away from businesses with a large impact on the climate?
These are immensely consequential questions, not just for the banks, but for everyone. How banks manage, or fail to manage, climate risks will affect things like home loans, business lending, retirement accounts, and insurance — things that will touch every sector of the economy. The Fed has set a deadline to receive these reports from banks by the beginning of August.