Biden Executive Order to Protect Financial System from Climate Change – Forbes Advisor

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Climate change is real. With its consequences now felt all over the United States, the economy could be its next target, and soon.

On May 20, President Joe Biden ordered federal agencies to begin planning how to protect the economy and financial systems from a collapse due to climate change. It comes a few days later new data Environmental Protection Agency (EPA) has warned that the effects of climate change in the United States are accelerating, with events like droughts, wildfires and flooding from rising sea levels more frequent.

Climate change poses serious risks to financial security, including infrastructure, investments and businesses. It also threatens key aspects of the economy such as supply chains, food supply and power grids, according to an information sheet on the decree.

Here’s why Biden created the command and what it will mean to you.

How will climate change affect the economy and financial systems?

While climate change may seem like an intangible threat to many, it is real and is happening now. And its impact on the financial system is already starting to be felt.

Banks, for example, are start selling mortgages on coastal homes to government-backed entities, such as Fannie Mae and Freddie Mac, indicating that they are aware of the risk of flooding homes from rising sea levels and are offloading the risk to the government and taxpayers.

Some banks also require up to 40% down payments on homes located in coastal areas, a sign that they want less risk on their equity.

Some experts warn climate change is triggering a fast-approaching local real estate crash. The coastal housing market is over $ 1,000 billion; over the next two decades, or sooner, it could collapse completely due to rising sea levels, increased risk of property damage and mortgage default, and falling debt. property value. Like any housing crisis, this could have ripple effects throughout the economy – less housing, higher prices and very risk averse lenders.

It is not only coastal regions that see the threats of climate change in their housing markets. Homeowners in extremely hot or drought-affected areas prone to forest fires are have more trouble getting insurance; insurance companies don’t want to run the risk of total loss after a devastating fire.

Read more: What is California going to do about future wildfire insurance?

On a larger scale, climate change can completely disrupt crucial aspects of the economy, such as agriculture, infrastructure and supply chains. Bad weather and rising sea levels can inundate crops and drown livestock; military bases and communications systems can be flooded by extreme weather conditions; droughts will make water more expensive, which can cause the cost of raw materials and production to skyrocket.

All of these ripple effects will eventually come back to your wallet. Fewer homes mean more competition to own and higher prices. While it is more difficult to purchase fire or flood insurance, you have to pay more for the protection or pay less than the coverage needed for a home. Economic disruptions in the supply chain mean fewer goods and higher prices.

Ultimately, all of this means that the financial well-being of the economy – and of ourselves – is at serious risk due to climate change.

What’s in Biden’s climate order?

The decree, entitled Executive Decree on Climate-Related Financial Risks, is broad and leaves many questions unanswered. But for now, this remains a crucial step in preparing the country for the fight against climate change.

The ordinance mandates two key roles in government – the national climate advisor and the director of the National Economic Council – to develop a comprehensive climate risk strategy, within 120 days of the ordinance, which identifies how the climate change affects government programs and assets. at risk.

Under the ordinance, a wide range of government agencies and financial institutions are required to begin to determine how climate change affects certain products and programs, and to develop plans to reduce their risks in the face of climate change. This could mean stricter requirements for institutions, like banks and lenders, to invest in clean energy or climate-friendly capital. Under the ordinance, investment firms will also be required to disclose climate-related risks in products, such as pensions and life savings, to clients.

But some people are already wondering how far the Biden administration will go to implement these changes in the financial system. Since the decree is broad, questions about how far it will go to enforce climate-friendly actions by banks and businesses remain unanswered.

As Quartz climate reporter Tim McDonnell points out, “The ordinance is vague as to its ultimate scope: how far will the government go to crack down on carbon-intensive finance? Does simply forcing banks and other businesses to disclose their carbon footprint precipitate progress towards eliminating climate risk? Or do regulators need to be more proactive? “

This is not the federal government’s first step towards assessing the financial risks associated with climate change. In April, Treasury Secretary Janet Yellen created a “Climate Pole»Within the Treasury Department, which focuses on the financial risk linked to climate change. It also explains how policies can help mitigate the disproportionate impacts of climate change on “disadvantaged communities”, but has yet to release information on the communities affected and the type of policy proposals to come.


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Don F. Davis

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