Biden orders federal financial strategy on climate risk, with implications for homeowners, pensions and government contracts

President Joe Biden has mandated 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 oversight of large industries, including federal money lending and federal contracting decisions. Some pension plans regulated by the Ministry of Labor, in particular pensions, will also fall under the new requirement.

The executive order signed Thursday will direct Treasury Secretary Janet Yellen, as head of the Financial Stability Supervisory Board, to share data on climate-related financial risks and release a report. The FSOC, which was created after the financial crisis more than a decade ago, includes the Federal Reserve and the Securities and Exchange Commission.

“From signing a loan for a new home or small business to managing a life savings or retirement fund, it’s important that the American people have access to the information they need to understand the potential risks. associated with these important financial decisions. ” the White House in its statement. “We know that the climate crisis, whether caused by rising sea levels or extreme weather conditions, already poses growing risks to infrastructure, investments and businesses. Yet these risks are often hidden.

The EO advocates the creation of a whole-of-government approach by National Economic Council Director Brian Deese and National Climate Advisor Gina McCarthy, in coordination with Yellen and the Office of Management and Budget.

According to Biden’s approach, the director of the OMB, while bringing in other agencies, would identify the main factors of exposure to federal climate risk and attempt to quantify the climate risk for the long-term budget projections of the government. President. The OMB and the Council of Economic Advisers would also develop and publish an assessment of the government’s exposure to climate risks.

Included in the ordinance, the Department of Labor, which regulates pension funds, will be asked to revise or repeal Trump-era rules limiting the ability of pension fund managers to vote on environmental, social and governance (ESG) of shareholders at annual meetings; these proposals increasingly include the disclosure of climate change risks.

And federal suppliers could be required to publicly disclose their greenhouse gas emissions and climate risks, as well as set science-based targets to reduce them.

The action of 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 world leaders for a summit.

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Republicans are generally concerned that tightening regulatory requirements and dropping support for traditional energy sectors will come at a cost to businesses and households.

The Stop the Money Pipeline Coalition activist group, made up of more than 150 separate organizations and focused on revealing how much big banks finance fossil fuels, hailed the OE as “a milestone for the climate finance movement.” , but stressed that he wanted formal action. United States plan for the next major United Nations climate meeting in Glasgow in November.

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Biden has approached climate change through executive orders and by wrapping the issue in broader policy initiatives, including his $ 2. A $ 3 trillion infrastructure plan, as it realigns the United States with a global push to lower Earth’s rising temperature. He said the United States could, with increased actions, achieve net zero emissions across the economy by 2050.

Independent regulators, such as the SEC and the Federal Reserve, do not receive direct orders from the White House and would make their own decisions on any new rule. But the downward push to tackle climate change is clear.

The Fed has increasingly flagged climate change as a long-term concern for financial stability. The SEC, meanwhile, is currently in a comment period for its efforts to demand new corporate information on climate change and other ESG issues in the coming months.

“The problem with decrees is that they can be overruled very easily by someone who comes next. [Biden] has taken some very important steps, especially in terms of signaling – like joining the Paris agreement, like revoking the Keystone pipeline, and also issuing an executive decree that really focuses on tackling the climate crisis, which requires one approach, ”said Sanjay Patnaik, director of Brookings’ Center on Regulation and Markets, in a commentary at the Biden climate summit in April.

“I think that’s where he’s had an impact so far, because he’s really trying to reorient all federal agencies and parts of government towards climate as a major issue to be addressed,” Patnaik said.

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Don F. Davis

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