President Biden Signs Sweeping Executive Order on Climate-Related Financial Risk

President Biden last week signed an executive order on climate-related financial risk that, among other things, directs financial regulators to take several steps to ensure the appropriate measurement and mitigation of these risks. The order directs the treasury secretary to work with the members of the Financial Stability Oversight Council to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk, including both physical and transition risks, to the financial stability of the federal government and the stability of the U.S. financial system,” as well as facilitating the sharing of climate-related risk information between FSOC member agencies and other areas of the federal government as needed.

In addition, Treasury must issue a report within 180 days on current efforts by the financial regulatory agencies to incorporate climate-related financial risk into their policies and programs. That report should include recommendations on how “identified climate-related financial risks can be mitigated, including through new or revised regulatory standards as appropriate,” according to the order. This action by the Biden administration comes after officials from the Federal Reserve, OCC, FDIC and SEC in recent weeks have all indicated that they are focusing efforts on climate-related financial risks.

The executive order also directs the secretary of labor to take certain actions to address climate-related financial risks that could affect retirement savings and pension funds. Among other things, the Labor Department should “consider publishing by September 2021” proposals to “suspend, revise or rescind” the Trump administration’s finalized rules on ESG investing and proxy voting. DOL already has suspended enforcement of these rules and is in the process of re-examining them for revision. Read the executive order.

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