On October 15, 2021, the Biden-Harris Administration released "A Roadmap to Build a Climate-Resilient Economy" (EO 14030). The report lays out a Climate Risk Accountability Framework along with a Whole-of-Government Implementation Strategy to achieve the goals of the President's May 2021 EO on Climate-Related Financial Risks. The report highlights both the physical risks associated with climate change to assets, publicly traded securities, private investments, and companies, along with the transition risk and opportunity to companies, communities, and workers.
The Climate Risk Accountability Framework is guided by the following principles:
- Mobilizing public and private finance to support the transition to a net-zero US economy with dual goals of developing jobs and infrastructure of the 21st century and achieving net zero greenhouse gas emissions;
- Protecting climate vulnerable and disadvantaged communities by committing to necessary clean energy and climate infrastructure investments in such communities;
- Protecting against financial risk to the federal government and its assets by ensuring that Federal agencies properly account for, disclose, and mitigate risks as they pertain to federal assets and programs;
- Safeguarding the U. financial system against climate-related financial risk by requiring financial institutions to properly measure, disclose, manage, and mitigate climate-related financial risks, including as part of financial modeling; and
- Demonstrating global leadership by being involved in current international efforts to address climate-related financial risk, which has shown to adversely impact the global economy (e.g., issues with the global supply chains).
The Whole-of-Government Implementation Strategy to address climate-related financial risk is focused on six areas:
- Promoting the resilience of the US financial system to climate-related financial risk through financial regulation. The Secretary of the Treasury as the chair of the Financial Stability Oversight Council (FSOC) is responsible for engaging with the other members of FSOC on key actions to assess climate-related financial risks and their impacts on the stability of the US financial system stability;
- Protecting American life savings and pensions by considering how to improve the regulatory framework to allow pension plan managers to adequately consider climate-related financial risks;
- Federal procurement;
- Federal budgeting, financial management and reporting;
- Financial management and reporting;
- Federal lending and underwriting to improve the approaches of federal agencies (including HUD, VA and USDA) in integrating climate-related financial risk into underwriting standards, loan terms and conditions, asset management and servicing procedures in connection with federal lending policies and programs; and
- Resilient infrastructure and communities by re-establishing a Federal Flood Risk Management Standard to address current and future flood risk and protect federal assets against climate change and other threats.
The report focuses mainly on actions already taken by federal agencies and highlights upcoming agency actions. For example, it highlights FSOC's forthcoming report (expected November 2021) that will discuss the importance of climate-related disclosures by regulated financial institutions, current approaches to incorporating climate-related financial risk into regulatory and supervisory activities, and recommend processes to identify climate-related financial risks to US financial stability, which will help to guide regulatory and supervisory efforts. We note that EO 14030 also discusses the importance of the insurance sector in addressing climate-change risks, and therefore the Federal Insurance Office has been instructed to assess climate-related issues or gaps in supervision and regulation of insures as part of FSOC's analysis of financial stability, and to assess, in consultation with state insurance regulators, the potential for significant disruptions of private insurance coverage in areas most vulnerable to climate change impacts. The report also highlights the DOL proposed rule under the Employee Retirement Income Security Act of 1974 to empower plan fiduciaries that they may consider climate change and other environmental, social and governance (ESG) factors when they make investment decisions. Another example is the Federal Acquisition Regulatory Council's advanced notice of proposed rulemaking, which proposes a potential amendment to the Federal Acquisition Regulation to require that agencies consider supplier's greenhouse gas emissions.
The report builds on the work already done by the Biden-Harris Administration and demonstrates how climate-related financial risks continue to be a focus for this Administration.
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