# For the first time, Fed identifies climate change as a risk to financial stability

The Fed’s quarterly financial stability report, released after stock markets closed on Monday, said climate change can produce storms, floods, droughts or wildfires that “can quickly alter, or reveal new information about, future economic conditions or the value of real or financial assets. Moreover, in the presence of rapid shifts in public perceptions of risk, chronic hazards (like a slow rise in sea levels) have the potential to produce similar abrupt repricing events,” the central bank said.

Related: Hedge-fund selling wasn’t ‘primary driver’ of Treasury market turmoil, Fed study says

The Fed identified real estate as an example of how climate change could impact financial markets. “Some residential and commercial properties will be subject to acute hazards such as storm surges associated with rising sea levels and more intense and frequent hurricanes. Continued productive use of these properties would require investment and adaptation. 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 nonfinancial firms using such properties,” the central bank said.

Lael Brainard, a Fed governor who has been mentioned as a possible Treasury secretary in a Biden administration, hailed the move. “It is vitally important to move from the recognition that climate change poses significant financial stability risks to the stage where the quantitative implications of those risks are appropriately assessed and addressed,” she said.

Other governments and central banks have been more active on climate change. The U.K. government on Monday said it would introduce fully mandatory climate-related financial disclosure requirements across the U.K. economy by 2025, with a significant portion of mandatory requirements in place by 2023.

European Central Bank President Christine Lagarde is including climate change in her strategy review of the central bank, and the ECB purchased green bonds as part of its broader bond-buying programs. Green bonds are debt whose proceeds are used to finance investment projects with an environmental benefit.

By contrast, the Labor Department of the outgoing Trump administration ruled that retirement funds cannot invest in environmental, social and governance vehicles that sacrifice investment returns or take on additional risk.