Climate change is already costing the global economy – and damage will only worsen without green initiatives, Fed’s Brainard says

Climate change is already costing the global economy – and damage will only worsen without green initiatives, Fed’s Brainard says

Climate change is affecting financial institutions and economies around the world, and transitioning to a green economy is necessary to avoid major damage, Federal Reserve Governor Lael Brainard said Thursday.

The Fed has increasingly emphasized the need to adapt the US economy and the financial system to handle climate-related risks. Brainard doubled down on such calls on Thursday, noting institutions that don't take necessary precautions could face "outsized losses on climate-sensitive assets."

"Climate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad," she said in prepared remarks. "Future financial and economic impacts will depend on the frequency and severity of climate-related events and on the nature and the speed at which countries around the world transition to a greener economy."

Failing to accelerate a transition to a more environmentally friendly economy leaves the financial system vulnerable to both physical risks and transition risks. The former involves extreme weather events that, according to a study cited by the governor, are estimated to have driven $5.2 trillion in global losses over the past four decades. That sum stands to climb even higher if climate change worsens and extreme weather grows even more severe,