Unexpected: The Federal Reserve announces its withdrawal from the global central bank regulatory organization on climate change

On January 17th, Friday, Eastern Time, the Federal Reserve announced a surprising decision to withdraw from the "Central Banks and Supervisors Network for Greening the Financial System" (NGFS), an organization dedicated to researching how to regulate climate change risks within the financial system. In its official statement announcing the withdrawal from NGFS, the Federal Reserve stated that the decision was made because the scope of NGFS's work has exceeded the Federal Reserve's responsibilities. The statement read: "While the Federal Reserve appreciates the collaboration with NGFS and its members, the scope of NGFS's work has increasingly expanded to cover broader issues beyond the Federal Reserve's statutory responsibilities." NGFS was initiated in December 2017 by eight central banks and regulatory authorities, including the People's Bank of China, the Dutch Central Bank, the French Central Bank and the Macroprudential and Resolution Committee, the Bank of England, the German Central Bank, the Swedish Financial Supervisory Authority, the Monetary Authority of Singapore, and the Bank of Mexico. Over the past four years, the organization has expanded to include more than 130 central banks, regulatory authorities, and observer institutions across five continents. The Federal Reserve joined in 2020. In 2021, the People's Bank of China introduced that NGFS has become an important platform for central banks and financial regulatory authorities to conduct research and cooperation on green finance. Ma Jun, director of the Green Finance Professional Committee of the China Financial Society and a former member of the Monetary Policy Committee of the People's Bank of China, previously stated that the establishment of NGFS was due to a consensus among global central banks and regulatory authorities: that environmental and climate-related risks have become a significant source of financial risk. In other words, environmental and climate factors may evolve into financial risks that financial institutions face and may pose systemic threats to financial stability. It can be simply understood that the majority of central banks worldwide believe that environmental and climate risks could trigger a financial crisis. The Federal Reserve did not elaborate on why it decided to withdraw from NGFS at this time. Some commentators summarized that, from the statement, the Federal Reserve believes that NGFS's goals have expanded to work beyond the core responsibilities of the Federal Reserve. Other commentators pointed out that in recent years, the Federal Reserve has faced pressure from Republican lawmakers, who are concerned that excessive worries about climate change are influencing financial regulation and that the Federal Reserve is becoming increasingly politicized. In contrast, the People's Bank of China has been actively promoting green finance policies since participating in the initiation of NGFS. In 2021, the People's Bank of China established five pillars of green finance, including a green finance standard system, environmental information disclosure, incentive and constraint mechanisms, green finance products and market systems, and accelerated international exchanges and cooperation in green finance, thereby speeding up the pace of green and low-carbon transformation of the social economy. In March of last year, the People's Bank of China and seven other departments jointly issued the "Guiding Opinions on Further Strengthening Financial Support for Green and Low-Carbon Development," clearly stating that in the next five years, an internationally leading financial support system for green and low-carbon development will be basically constructed; by 2035, various economic and financial green and low-carbon policies will be coordinated and efficiently promoted, the standard system and policy support system for financial support for green and low-carbon development will be more mature, and the functions of resource allocation, risk management, and market pricing will be better utilized, while proposing to "gradually expand the scope of trading entities suitable for the development of China's carbon market." In August 2024, the Central Committee of the Communist Party of China and the State Council issued the "Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development," which for the first time systematically deployed comprehensive green transformation at the national strategic level, emphasizing the need to enrich financial tools for green transformation and accelerate the development of transformation finance. Subsequently, standards for transformation finance and innovative products were successively implemented, becoming a key driving force for promoting low-carbon transformation in society. Earlier this month, the People's Bank of China and the Ministry of Ecology and Environment jointly held a meeting to promote green financial services for the construction of a beautiful China. Zhu Hexin, Vice Governor of the People's Bank of China, stated at the meeting that China is currently entering a high-quality development stage that accelerates greening and low-carbonization, which places higher demands on the development of green finance. Financial institutions should strengthen analysis and research on key green industries, actively explore innovations, continuously enrich the spectrum of green financial products, and proactively connect with the key project list for the construction of a beautiful China, providing financing and intellectual services based on market-oriented and rule-of-law principles