Biden-Harris administration takes action on climate-related financial risks

US President Joseph Biden issued the Executive Order on Climate-Related Financial Risks on May 20, 2021, directing federal agencies of the US government to take action to address climate-related financial risks.

The decree requires, among other things:

  • Developing a government-wide strategy to address climate-related risks associated with U.S. government operations and financing needs to achieve net zero emissions by 2050
  • A report on climate risks and disclosures in the US financial system
  • An assessment of climate-related risks in the US insurance system
  • An assessment of climate-related risks for pension plans, including an assessment of Trump-era regulations on the consideration of environmental factors in pension plan investments
  • Recommendations on Approaches to Integrate Climate-Related Financial Risk into Federal Financial Management and Reporting, Particularly Regarding Federal Lending Programs
  • Implementation of new climate-related disclosures for federal suppliers
  • Consideration of climate-related financial risk in the preparation of the federal budget

The increased focus of administration on climate-related financial risk comes along with an increasing corporate focus on environmental and sustainability issues, which collectively have the potential to increase corporate appetite for sustainability. renewable energy production and stimulate additional investment in renewable energy projects. Renewable energy purchases by large business buyers have grown significantly in recent years, from 2.76 gigawatts (GW) in 2017 to 10.6 GW in 2020. Business investments in renewable energy via of power purchase agreements in particular have grown from $ 11.1 billion in 2018 to about $ 15.9 billion in 2020. Business purchases and investments in renewables are expected to continue to increase as more and more companies continue to work to achieve their sustainability goals.

Regarding climate-related risks and disclosures in the US financial system, the executive order directs the US Secretary of the Treasury to initiate the Financial Stability Oversight Council (FSOC), established under the Dodd-Frank Wall Street Reform Act and Consumer Protection Act. to monitor the U.S. financial system, to do the following:

  • Assess, “in a detailed and comprehensive manner, climate-related financial risk, including physical and transitional risks, to the financial stability of the US federal government and the US financial system”
  • Facilitate the sharing of data on climate-related financial risks between FSCO member agencies and other government departments and agencies, as appropriate
  • Publish a report within six months describing the efforts of FSCO member agencies “to integrate consideration of climate-related financial risks into their policies and programs,” including a discussion of the following:
    • Measures needed “to improve the disclosure of climate information by regulated entities in order to mitigate climate-related financial risk to the financial system or assets and a recommended implementation plan to take these measures”
    • Current approaches to mainstream ‘climate finance risk awareness’ into regulatory and supervisory activities, and barriers to adoption
    • Recommended Processes for Identifying Climate-Related Financial Risks to U.S. Financial Stability
    • Further recommendations on how to mitigate climate-related financial risk, including through new or revised regulatory standards

The issuance of the executive order is one of many steps the Biden-Harris administration has taken in recent months to address climate-related financial risks. On April 22, 2021, the administration released its U.S. international climate finance plan, which outlined efforts the administration intends to undertake to boost investment in developing countries to reduce or avoid new emissions of greenhouse gases (GHGs) and mitigate the impacts of climate change and the measures taken. information on the global climate will need to be improved.

The international climate finance plan also states that the US Department of the Treasury, in coordination with other US agencies and regulators, will continue to do the following, among other things:

  • Co-chair the G20 Sustainable Finance Working Group which in 2021 will (1) work on improving sustainability disclosure and reporting, and (2) consider how to improve the reliability and compatibility of sustainability approaches. ” identification of sustainable and climate-aligned investments.
  • Participate in work within the Financial Stability Board (FSB) and other international bodies to improve the data available to assess and monitor climate-related financial risks, and coordinate with US regulators and other agencies working on climate-related financial risks. climate-related financial data in the financial standard – regulating body
  • Coordinate with U.S. regulators engaged in the development of financial standards and other forums to improve approaches to assessing and managing climate-related financial risks
  • Support and guide, in coordination with American regulators, the work undertaken by international organizations to develop coherent, comparable and reliable financial information related to the climate, compatible with the national framework and the American regulatory process.
  • Support the engagement of US financial institutions and implement best practices from voluntary private sector coalitions working on goals, strategies and metrics to achieve net zero issue portfolios and institutional strategies

In addition, the United States Securities and Exchange Commission (SEC) has separately undertaken several recent initiatives related to climate disclosures, including (1) directing the Division of Corporation Finance to focus more on climate-related disclosure in filings. public companies, which could in an update to the 2010 SEC guidelines on public company disclosure requirements related to climate change issues; (2) solicit comments from the public on the update to the aforementioned 2010 guidance; and (3) direct the Reviews Division to focus more on climate-related risks in 2021.

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