On May 20, 2021, President Biden signed an Executive Order with a goal of increasing disclosure of climate-related financial risk in both the public and private sectors. As a result, disclosure and reporting obligations regarding climate-related risks will likely increase. The Order called for a comprehensive consideration of climate change-related financial risks, and how they should be communicated to the public and investors.
The Order directs federal policymakers to develop a strategy for identifying and disclosing climate-related financial risk to government programs, assets, and liabilities, including identifying public/private financing needed to reach economy-wide, net-zero emissions by 2050 to limit further temperature rise per the Paris Climate Agreement.
The Order also requires the Financial Stability Oversight Council (FSOC) to assess climate-related financial risk to the federal government and overall U.S. financial system. The FSOC should discuss the necessity of greater climate-related disclosure by certain entities to mitigate risk to the stability of the financial system and new regulations for identifying and mitigating such risks.
The Order directs the Dept of Labor to identify regulatory actions to assess the threats that climate risk may have to savings and pension plans. This includes reconsidering rules that prohibit investment firms from considering environmental, social, and governance (ESG) factors in investment decisions related to workers’ pensions.
The Order also requests recommendations for incorporating climate-related financial risk into federal management and reporting, including potential new accounting standards for reporting of such risks. The Order also requests changes to rules that would require that major federal suppliers publicly disclose GHG emissions and climate-related financial risk and set reduction targets. Similarly, lending and grant agencies like Agriculture, Housing and Urban Development, and Veterans Affairs are to consider integrating such risk assessment into their lending policies and programs.
The Order also requests the federal government develop regulatory standards for misleading advertising and claims about climate change and sustainability (“greenwashing”) that may result in enforcement actions.
After signing the Executive Order, President Biden included in his FY 2022 budget to Congress $44.0 million in new funding to the Dept of Justice “to advance environmental justice, tackle climate change, and enhance environmental stability.”
Meanwhile, the Federal Reserve has established two committees to evaluate climate-related financial risk, examining how climate change affects individual banks.
Please note that this is not a legal analysis of the Executive Order. Consult with qualified legal professionals before pursuing actions or policies concerning this Executive Order. CCES has the technical experts to help you determine your status concerning GHG emissions and sustainability. Contact us today at 914-584-6720 or at karell@CCESworld.com.