By Zohd Khan
President Joe Biden recently signed a new executive order to help deal with “Climate-Related Financial Risk”.
The order, which was released to the public last Thursday, May 20, recognized that the measures taken to combat climate change are often risky for businesses and companies. Examples of such risks include supply chain disruptions and transition risks for companies that may have a difficult time shifting away from carbon-intensive energy sources.
Given these potential risks, the order explained that “the failure of financial institutions to appropriately and adequately account for and measure these physical and transition risks threatens the competitiveness of U.S. companies and markets, the life savings and pensions of U.S. workers and families, and the ability of U.S. financial institutions to serve communities.”
The passage of this executive order is intended to decrease the likelihood of this threat on the U.S. economy while still reaching the target goal of a “net-zero emissions economy” by 2050.
President Biden stated that he has ordered the assistants of various government agencies to devise a “comprehensive, government wide-strategy” to mitigate this financial risk in the next 120 days (starting from the date of the order).
One objective of the strategy will be to “develop recommendations for the National Climate Task Force on approaches related to the integration of climate-related financial risk into Federal financial management and financial reporting, especially as that risk relates to Federal lending programs.”
Furthermore, the order will consider amending the Federal Acquisition Regulation (FAR) to require major federal suppliers to disclose data on greenhouse gas emissions and other climate-related issues that could result in financial risk. This data can help government agencies set “science-based reduction targets.”
Another proposed amendment to the Federal Acquisition Regulation will be to ensure Federal agency decisions are always mindful of the social costs of greenhouse gas emissions and to give preference to suppliers who are also mindful of these costs.
This new executive order also reinstated the effects of past Executive Order 13960, which established a “Federal Flood Risk Management Standard” and focused on addressing the financial burdens that come with flood risk.
The White House also released a fact sheet on this executive order. The fact sheet emphasized that the government has a desire to “safeguard the financial security of America’s families, businesses, and workers from the climate-related financial risks they are already facing”.
Throughout the statement, the White House placed continual focus on the government’s responsibility in “empowering the American people to make informed financial decisions”.
One additional priority mentioned in the fact sheet was for the government to “bolster the resilience of life savings and pensions”.
Ben Cushing, the financial advocacy campaign manager at Sierra Club, stated that “It’s really promising that President Biden is recognizing the enormous systemic risks of the climate crisis”.
Cushing also mentioned that the deadline of within 180 days for a detailed strategy is appropriate, mainly because a United Nations Climate Change Conference is scheduled to take place in early November.