On May 20, 2021, U.S. President Joe Biden issued an executive order (EO) on “Climate-Related Financial Risk,” which established a comprehensive policy to advance disclosure and mitigation of climate-related financial risk in an effort to achieve the U.S. goal of net zero emissions by 2050.
The EO directs agencies across the federal government to analyze and mitigate the risk climate change poses to homeowners and consumers, businesses and workers, the financial system, and the federal government. Specifically, the EO includes the following directives:
- The National Climate Advisor and the National Economic Council (NEC) must develop a comprehensive governmentwide strategy for mitigating climate risk by September 2021.
- The Treasury Secretary will lead financial regulators in assessing climate-related financial risk and consider issuing a report by November 2021 with recommendations and agency plans to improve climate-related disclosures and incorporate climate-related financial risk into regulatory and supervisory practices.
- The Labor Secretary should revisit and issue proposals by September 2021 for certain Trump-era rules related to environmental, social, and governance factors, including climate-related risks, in pension investment decisions and issue a report by November 2021 on other measures that may be taken to account for climate risk in life savings and pensions.
- The Office of Management and Budget (OMB), NEC, Federal Acquisition Regulatory (FAR) Council, Council on Environmental Quality, and Departments of Agriculture, Housing and Urban Development, and Veterans Affairs are required to take various actions to account for climate-related financial risk in federal lending, underwriting, and procurement. Notably, among these requirements, FAR regulations may be amended to ensure that agencies give preference to bids and proposals from federal suppliers with a lower social cost of greenhouse gas
- OMB, in consultation with other executive offices and departments, will develop an annual assessment of the federal government’s climate-related fiscal risk exposure and reduce the risk through the President’s budget.
Businesses, investors, and financial institutions should particularly take note of this sweeping direction from the White House, which further cements the need to track these developments, participate in agency proceedings, and plan for a changed regulatory framework.
Sidley will monitor the EO deliverables as well as related agency actions advancing the administration’s “whole-of-government” approach to climate change. For more information, please visit Sidley’s climate change practice webpage.