One Step Back at the Fed. Corporate Action Can't Wait.

It is critical to distinguish between what the U.S. Federal Reserve is mandated to do on sustainability and climate change, and what it is increasingly choosing not to do, with Kevin Warsh's nomination pointing to further retrenchment on climate-related issues.

The Fed's Position on Climate Risk

Under current leadership, including outgoing Chair Jerome Powell, the Federal Reserve has acknowledged that climate change poses financial risks, such as physical damage from extreme weather or transition risks from policy and market shifts, and that banks need to understand and manage those risks. However, Powell has been clear that the Fed is not a climate policymaker and does not set climate or sustainability targets for the economy. Its role is to maintain price stability, maximum employment, and financial stability, not drive environmental outcomes.

In essence, the Fed can encourage banks to incorporate emerging risks into their risk frameworks, but it doesn't dictate sustainability goals like emissions reductions or energy transitions.

Recent Regulatory Context: Rollback of Climate Risk Guidance

In October 2025, the Federal Reserve, alongside the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), withdrew the Principles for Climate-Related Financial Risk Management for Large Financial Institutions, a guideline introduced in 2023 to help big banks address climate-related exposures.

Regulators now argue that existing safety and soundness standards already require institutions to manage all material risks, including climate-related ones. Critics, including one Fed governor who dissented, argue that the rollback weakens financial oversight as climate risks grow.

This rescission is part of a broader trend: U.S. regulators, including the Fed, have also exited global climate coalitions and scaled back climate-focused guidance, reversing part of the prior administration's approach.

Kevin Warsh and the Future of the Fed

Today, January 30th, the US President has nominated Kevin Warsh to be the next Chair of the Federal Reserve. Warsh is a former Fed governor known for advocating a narrower central bank mandate and less involvement in what he sees as "social" issues, including climate-related initiatives.

Warsh has called for a "regime change" at the Fed, criticizing its expansion beyond traditional monetary policy and arguing that issues like climate change fall outside the central bank's core mission. Although he supports focusing on core price stability and financial regulation, his views suggest that even risk-management guidance related to climate may be further deemphasized or rolled back under his leadership.

This perspective reflects a broader shift: rather than setting or encouraging sustainability goals, the Fed under Warsh's potential leadership is likely to focus more strictly on traditional financial risks and guard against what he and others see as mission creep.

So Who Is Responsible for Sustainability?

With the Federal Reserve stepping back from climate-specific guidance and little leadership from federal agencies, responsibility for advancing sustainability is increasingly shifting elsewhere.

At the policy level, momentum is concentrated mainly in U.S. blue states, where climate targets, clean energy standards, and disclosure rules continue to evolve — creating a fragmented regulatory landscape.

As federal signals weaken, companies and investors must take the lead, setting their own transition strategies, science-based targets, and credible climate risk disclosures.

Markets and stakeholders — including customers, employees, lenders, and insurers — continue to reward firms that manage climate risks and invest in resilient, low-carbon business models.

For many globally active companies, international regulation and market expectations now matter more than U.S. federal policy.

The Bottom Line

With climate risk guidance retreating at the federal level and Kevin Warsh's nomination pointing to a further narrowing of the Fed's mandate, the path forward for climate action lies increasingly with corporate leadership and public policy at the state level, where blue states remain the most active.

In a world where regulators retreat from sustainability commitments, companies can't afford to wait, they must embed climate strategy into their governance, risk frameworks, and capital allocation to navigate long-term risks and seize opportunities in the transition to a sustainable economy.