Federal Reserve's Powell warns the bank not to 'wander' into climate, social programs

Federal Reserve Chairman Jerome Powell says institutions such as the central bank should resist taking on big issues like climate change unless Congress authorizes it.

Mr. Powell made the comments during a speech at a Swedish conference on Tuesday amid a broader debate over the role of the Fed and major banks in addressing climate change and getting involved in environmental, social and governance (ESG).

“Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Mr. Powell said. “Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections.”

Mr. Powell said banks need to be ready for climate shocks but, beyond that, their roles in the subject should remain narrow.

“The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change,” Mr. Powell said.

President Biden had to withdraw a nominee to the Fed Board of Governors, Sarah Bloom Raskin, after Republicans and key Democrats claimed she would steer the Fed away from banks that bolster fossil fuel companies.

Unlike with European banks, which have supported climate initiatives, Mr. Powell said the U.S. should not “wander off to pursue perceived social benefits.”

“We shouldn't be getting ahead of where the public is if there’s no specific mandate,” he said. “In the case of the U.S. that's a particularly salient point.”

Mr. Powell commented as the new GOP House majority tries to clamp down on ESG programs.

Rep. Byron Donalds, Florida Republican, filed a bill that would ban agencies from requiring companies to disclose their greenhouse gas emissions as a condition for winning contracts.

Florida and other GOP-led states have withdrawn assets from the BlackRock investment firm over its social ESG initiatives.