President Joe Biden on Thursday laid out a comprehensive strategy for federal agencies to identify and manage the economic risks of climate change. Areas of focus range from the threat of extreme weather events, to infrastructure and supply chains, to the “transition risk” for fossil fuel investments and jobs in a decarbonizing economy.
Thursday’s executive order lays out a broad-reaching set of initiatives aimed at tackling the risks of climate change to “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.”
“We know that the climate crisis, whether through rising seas or extreme weather, already presents increasing risks to infrastructure, investments and businesses. Yet these risks are often hidden,” the administration wrote in a fact sheet on the order.
“Our modern financial system was built on the assumption that the climate was stable,” National Economic Council Director Brian Deese said in a Thursday press conference. "Today it's clear that we no longer live in such a world."
The order sets a 120-day deadline for Deese and National Climate Advisor Gina McCarthy to work with federal agencies to create a governmentwide strategy to identify “climate-related financial risk to Federal Government programs, assets, and liabilities.” The end result will guide requirements for federal agencies to consider the cost of greenhouse gas emissions in their procurement decisions, as well as for government suppliers to disclose their greenhouse gas emissions and climate risks and set “science-based reduction targets.”
This strategy effort will also identify the private and public financing needed to reach the Biden administration’s goal of reaching net-zero carbon emissions in the U.S. by 2050. It will also seek to identify “areas in which private and public investments can play complementary roles in meeting these financing needs.”
The Biden administration is seeking to rally Congress and the public behind a $2.1 trillion jobs and infrastructure plan that includes spending to decarbonize large swaths of the economy. This effort will require even greater incremental investments from the private sector in order to succeed.
Thursday’s order also sets a 180-day deadline for the multi-agency Financial Stability Oversight Council, led by Treasury Secretary Janet Yellen, to analyze climate change risks to financial system stability. Yellen has called climate change an “existential risk to our future economy and way of life” and has laid out plans to create “reliable, consistent and comparable disclosures needed for investors to accurately compare climate-related risks and opportunities across companies.”
Those plans include guidance to the Securities and Exchange Commission to undertake a review on climate-related disclosures for publicly traded companies, and steps by the Federal Reserve to examine financial institutions’ exposure to climate-change impacts.
Thursday’s order won praise from environmental groups demanding more regulatory action to force companies to assess and disclose climate risk. But that praise came with demands for further action to limit investments in fossil fuel industries, which have risen in the past year.
The International Energy Agency’s Net Zero by 2050 report released this week cited the need to end investment in fossil fuels immediately if the world is to reduce carbon emissions enough to avert the worst effects of global warming. Major U.S. banks JPMorgan Chase, Citi, Wells Fargo and Bank of America were the four largest funders of fossil fuel projects over the past four years, according to a report from the Rainforest Action Network, the Sierra Club and other nongovernmental organizations released this month.
Jamal Raad, executive director of the nonprofit group Evergreen Action, called the executive order “a starting gun from the White House to Treasury, the SEC, and others to get moving on America’s work to not just monitor and disclose the risks that climate change poses to our financial well-being, but actually mitigate those risks.”
“If financial institutions continue with business as usual, a climate-fueled crash would harm every sector of our economy and wreak havoc on the lives of Americans,” he said in a Thursday statement.
Nat Keohane, senior vice president for climate at the Environmental Defense Fund, said in a Thursday statement that Biden’s order will enable “agencies from the Treasury Department to the Labor Department to the Federal Insurance Office to start determining ways to minimize climate-related financial risks.”
Keohane also called for mandatory disclosures of climate-related risks from businesses and financial institutions, and for placing a price on carbon as proposed by the Commodity Futures Trading Commission last year.
"The most expensive thing we can do about the climate crisis is ignore the risks," he said.
(Article image courtesy of Etienne Martin)
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