President Joe Biden is preparing to instruct federal agencies to take sweeping action to combat climate-related financial risks to government and the economy, including moves that could impose new regulations on businesses.
In a draft executive order obtained by POLITICO, Biden reaches into all corners of the federal government with plans that would touch every sector of American industry, including banking and insurance, oil and gas, housing, agriculture, and federal contracting, purchasing and lending.
The Biden administration is assembling the plan ahead of a major international climate summit the president plans to host April 22-23. It reflects growing global concerns about how rising sea levels and devastating disasters could have knock-on effects on the financial system.
The order, titled “Climate-Related Financial Risk," directs White House economic and climate advisers to work with the Office of Management and Budget on a government-wide strategy to measure, mitigate and disclose climate risks facing federal agencies. Banking, housing and agriculture regulators are among those that will be asked to incorporate climate risk into their supervision of major industries and the lending of federal funds.
The four-page document is labeled a pre-decisional draft. White House and Treasury spokespersons had no comment.
“The global shift — taking place around the world — away from carbon-intensive energy sources and industrial processes presents transition risks to many sectors of the economy,” the order states. “At the same time, this global shift presents generational opportunities to enhance U.S. competitiveness and economic growth.”
Some of the provisions are familiar, echoing statements already voiced by Biden and some of his appointees, including Treasury Secretary Janet Yellen. The SEC already has begun work on potential regulations that would require companies to disclose their contributions and exposure to global warming. The Federal Reserve has also started to roll out efforts to police banks for climate risks.
Independent regulators, such as the SEC and the Fed, don’t take direct orders from the White House and would make their own decisions on any new rules.
But the executive order is a starting gun for agencies to begin delivering on the president’s sweeping climate agenda.
— The order directs Yellen, as head of the Financial Stability Oversight Council, to assess risks to the financial system and the U.S. itself and deliver a report within 180 days. The council, established after the 2008 Wall Street meltdown, includes the heads of all the federal financial regulators. Banks, asset managers, insurers and others in the financial services industry stand to be affected by any FSOC action.
—The Federal Insurance Office is singled out in the draft order with instructions to assess climate-related issues in its oversight of insurers. It's asked to work with state regulators to examine the potential for “major disruptions” of private insurance coverage in regions of the country particularly vulnerable to climate change. Insurance is primarily regulated at the state level and insurers enjoy close relationships with state officials.
— The Labor Department, which regulates retirement funds, will be asked to revise or rescind rules limiting the ability of pension fund managers to vote on shareholder proposals at annual meetings. The Trump-era rules were considered a way to limit shareholder efforts related to environmental, social and governance factors such as climate risk and employee diversity.
— The Federal Retirement Thrift Investment Board, which oversees the retirement accounts of 6.2 million participants, will be asked to evaluate the risk of continued investment in fossil fuel securities.
— Major federal suppliers could be required to publicly disclose their greenhouse gas emissions and climate risk and set science-based targets for reducing them. The SEC already is considering whether to require such disclosures from publicly traded companies. The contracting provision could affect nonpublic companies not subject to SEC oversight.
— Future federal purchasing decisions could take into account the social cost — future health and weather impacts, for example — of greenhouse gas emissions. The social cost of carbon currently is set at about $51 a metric ton, but the administration is expected to raise that figure early next year.
— The departments of Housing and Agriculture will be asked to consider integrating climate-related financial risk into their underwriting standards and loan conditions. Nearly 80 percent of U.S. homeowners have government-backed mortgages, which could be more difficult to get if underwriting is tightened. The National Flood Insurance Program currently is being overhauled to more accurately address climate risks facing homeowners.
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