The Federal Reserve has identified climate change as a risk to financial stability for the first time ever.
“Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly,” Lael Brainard, US Federal Reserve Governor, said in a statement attached to the report on Monday.
“Chronic hazards, such as slow increases in mean temperatures or sea levels, or a gradual change in investor sentiment about those risks, introduce the possibility of abrupt tipping points or significant swings in sentiment.”
The 80-page Financial Stability report assesses the current resilience of America’s financial system.
A chapter is dedicated to the “layer of economic uncertainty and risk” that the climate crisis adds to being able to analyse financial stability across the country.
The report notes that in regions where climate change causes “severe events”, home and business owners could be at risk of losses if the value of assets are damaged.
It notes that one example of increased financial risk is real estate that is exposed to storm surges and more intense hurricanes.
“Continued productive use of these properties would require investment and adaptation,” the report states.
“As inundations or storm surges become more frequent, the expected value of exposed real estate may decrease, which may in turn pose risks to real estate loans, mortgage-backed securities, the holders of these loans and securities, and the profitability of non-financial firms using such properties.”
Donald Trump has repeatedly called climate change a “hoax” and his administration has spent the past four years rolling back and weakening rules and policies to deal with it.
President-elect Joe Biden has promised to put climate change at the top of his priorities when he comes into office in January.
