White House Calls on Agencies to Analyze and Mitigate ‘Climate-Related Financial Risk’ | Jones Day

On May 20, 2021, President Biden released a Executive Decree (“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 failure of financial institutions to appropriately and adequately consider and measure climate risks, the implementation of the Order and agencies will affect financial regulation, pensions, procurement and oversight of the federal budget.

The ordinance directs the Secretary of the Treasury, in her capacity as Chair of the Financial Stability Supervisory Board (“FSOC”), to assess financial stability risks in coordination with FSOC member agencies. The decree encourages the FSOC to consider the need for actions, 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, announce that the FSOC will work “to improve climate-related financial information” 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 enforcement landscape. At the same time, the existing initiatives of the climate working groups in the SECOND and the CFTC should be monitored for related developments.

The ordinance 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 savings and pensions of American workers. »Against the financial risks linked to the climate. The White House Fact sheet on the ordinance noted that the Secretary of Labor should consider suspending, revising or rescinding any rule from the previous administration that would prevent investment firms from considering environmental, social and governance facts in investment decisions.

In addition, the Order influences procurement and budget processes. The Federal Acquisition Regulatory Council is urged to consider amending the Federal Acquisition Regulation 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 Bureau of Management and Budget should identify sources of climate-related risk and develop methods to quantify this risk in the President’s budget projections.

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