President Joe Biden signed an executive order that directs government agencies to analyze and take steps to mitigate the risk of climate change to the financial system.
Biden’s Executive Order on Climate-Related Financial Risk is designed to strengthen the U.S. financial system and help Americans better understand how climate change can impact their financial security.
The executive order establishes a whole-of-government approach to mitigating climate-related financial risk. Specifically, it requires the National Climate Advisor and the National Economic Council Director to develop a government-wide climate-risk strategy to identify and disclose climate-related financial risk to government programs, assets, and liabilities. It will identify the public and private financing needed to reach economy wide net-zero emissions by 2050. Further, it will seek to advance economic opportunity, worker empowerment, and environmental mitigation, especially in disadvantaged communities and communities of color.
Also, it will encourage the Treasury Secretary, in her role as the chair of the Financial Stability Oversight Council, to work with council members to assess climate-related financial risk to the stability of the federal government and the U.S. financial system. Additionally, the Treasury Secretary should work with member agencies to issue a report on actions the council recommends to reduce risks to financial stability.
Also, the executive order directs the Labor Secretary to consider suspending, revising, or rescinding any rules from the prior administration that would have barred investment firms from considering environmental, social, and governance factors, including climate-related risks, in their investment decisions related to workers’ pensions. Also, it asks the Labor Department to report on other measures that can be implemented to protect the life savings and pensions of U.S. workers and families from climate-related financial risk.
In addition, it seeks recommendations for improving how federal financial management and reporting can incorporate climate-related financial risk.
Finally, it directs that the federal government develop and publish an assessment of its climate-related fiscal risk exposure annually. Further, it directs the Office of Management and Budget to reduce the federal government’s exposure by formulating the President’s Budget and oversight of budget execution.
The executive action was praised by Sen. Elizabeth Warren (D-MA), a member of the Senate Banking, Housing, and Urban Affairs Committee.
“The climate crisis threatens our communities and our economies, and we cannot afford to ignore this threat. I’ve been calling for mandatory climate-related risk disclosures so that investors and the public have the information they need to assess the impacts of climate change on American companies – and I am glad that President Biden is taking action to help address the serious risks that the climate crisis poses to the U.S. financial system,” Warren said.
However, U.S. Rep. Frank Lucas (R-OK) took issue with the executive order.
“The Biden Administration’s executive order creating a strategy to quantify the risks climate change poses to both public and private financial assets is both irresponsible and an overstep of the Executive Branch and the agencies who serve our nation’s financial system. The regulation sends a clear message to businesses and consumers alike that President Biden intends to influence bank lending in certain sectors of our economy, dramatically affecting the cost and availability of capital, increasing costs for Americans, and stifling market-driven climate solutions,” he said.