White House calls on agencies to analyze and mitigate “climate finance risks” – Government, public sector


United States: White House Calls on Agencies to Analyze and Mitigate “Climate-Related Financial Risks”

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On May 20, 2021, President Biden released a Executive order (“Ordinance”) directing agencies to analyze and mitigate “climate-related financial risks”. As part of the administration’s broader climate agenda, the Order requires agencies to develop a “comprehensive government-wide strategy” affecting the financial system and the federal government. Designed to respond to what the President describes as “[t]The inability of financial institutions to take into account and appropriately and adequately measure “climate risks”, the implementation of the Ordinance and agencies will affect financial regulation, pensions, public procurement and supervision of the federal budget.

The College directs the Secretary of the Treasury, in her capacity as Chair of the Financial Stability Oversight Board (“FSOC”), to assess financial stability risks in coordination with FSCO member agencies. The ordinance encourages the FSOC to consider the need for action, including “new or revised regulatory standards”, to improve climate-related disclosures by regulated entities, and to recommend an implementation plan for these actions. . Treasury Secretary Janet Yellen is prioritizing this effort, announcing that the FSOC will work to “improve climate-related financial disclosures” and other data to measure potential exposures. Financial institutions and listed entities in particular should carefully monitor these initiatives, as they can portend substantial changes in the regulatory and law enforcement landscape. At the same time, the existing initiatives of the SEC and CFTC climate working groups should be monitored for related developments.

The order further directs the Secretary of Labor to identify agency actions under relevant laws – including the Employee Retirement Income Security Act of 1974 – to “protect the life savings and pensions of American workers” against climate-related financial risks. The White House Fact sheet on the ordinance noted that the Secretary of Labor should consider suspending, revising or repealing any rule of the previous administration that would prevent investment firms from taking environmental, social and governance facts into account in investment decisions .

In addition, the Order influences procurement and budget processes. The Federal Acquisition Regulatory Council is responsible for considering amending the Federal Acquisitions Regulations to require suppliers to disclose their emissions and ensure that purchases minimize climate risks. Potential changes include an obligation to take into account the social cost of emissions and a preference for offers with a lower social cost of emissions. With respect to budget processes, the Director of the Office of Management and Budget identifies sources of climate-related risk and develops methods to quantify this risk as part of the President’s budget projections.

Regulated parties should be made aware of reports and forthcoming actions by agencies integrating climate-related financial risk into agency policy, and be prepared to assess how potential regulation based on climate-related financial risk might have an impact. impact on their operations.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.

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