President Joe Biden is mandating a federal government strategy to quantify climate-change risks to public and private financial assets.
Banking, housing and agriculture regulators are among those who will be asked to use climate risk in their supervision of major industries, including the lending of federal funds and decisions on federal contracts. Some Department of Labor-regulated retirement plans, pensions in particular, will also fall under the new requirement.
The executive order signed Thursday will direct Treasury Secretary Janet Yellen, as head of the Financial Stability Oversight Council, to share climate-related financial risk data and issue a report. The FSOC, which was created after the financial crisis a decade-plus ago, includes the Federal Reserve and the Securities and Exchange Commission.
“From signing a loan for a new home or small business to managing life savings or a retirement fund—it is important for the American people to have access to the information needed to understand the potential risks associated with these significant financial decisions,” the White House in its statement. “We know that the climate crisis, whether through rising seas or extreme weather, already presents increasing risks to infrastructure, investments and businesses. Yet these risks are often hidden.”
The EO pushes a government-wide approach to be created by National Economic Council Director Brian Deese and National Climate Advisor Gina McCarthy in coordination with Yellen and the Office of Management and Budget.
Under Biden’s approach, the OMB director, while tapping other agencies, would identify the primary drivers of federal climate-risk exposure and try to quantify climate risk for the president’s long-term budget projections. The OMB and the Council of Economic Advisers would also develop and publish an assessment of the government’s climate-risk exposure.
Included in the order, the Labor Department, which regulates retirement funds, will be asked to revise or rescind Trump-era rules limiting the ability of pension-fund managers to vote on shareholder environmental, social and governance (ESG) proposals at annual meetings; those proposals increasingly include climate-change risk disclosure.
And federal suppliers could be required to publicly disclose their greenhouse-gas emissions and climate risk, plus set science-based targets for reducing them.
The action from a climate-focused Biden was expected. Preliminary reports revealing much of its content circulated last month as the president and his climate envoy, John Kerry, hosted global leaders for a summit.
Republicans generally have been concerned that stepped-up regulatory requirements and a move away from supporting traditional energy sectors will be expensive for business and households.
The activist group Stop the Money Pipeline Coalition, consisting of more than 150 separate organizations and focused on revealing how much major banks fund fossil fuels, welcomed the EO as “an important step for the climate finance movement,” but stressed it wants a formal action plan from the U.S. for the next major U.N. climate meeting, in Glasgow in November.
Biden has approached climate change through executive orders and by wrapping the issue into broader policy initiatives, including within his $2. 3 trillion infrastructure plan, as he realigns the U.S. with a global push to lower Earth’s rising temperature. He has said the U.S. can, with increased actions, hit economy-wide net-zero emissions by 2050.
Independent regulators, such as the SEC and the Federal Reserve, don’t take direct orders from the White House and would make their own decisions on any new rules. But the top-down push to address climate change is clear.
The Fed has increasingly flagged climate change as a longer-run concern for financial stability. The SEC, meanwhile, is currently in a comment period for its push to require new corporate disclosures on climate change and other ESG issues in the coming months.
“The problem with executive orders is that they can be reversed very easily by someone who comes in next. [Biden] has taken some very important ones, especially in terms of signaling — like rejoining the Paris Agreement, like revoking the Keystone pipeline, and also putting out an executive order that really is focused on tackling the climate crisis, which takes a whole-of-government approach,” said Sanjay Patnaik, director of the Center on Regulation and Markets at Brookings, in a commentary during Biden’s April climate summit.
“I think that this is where he has had an impact so far, because he really tries to reorient all federal agencies and parts of the government towards climate as a major issue to tackle,” Patnaik said.