President Biden today issued an executive order that outlines the administration’s plan to manage the financial risks associated with the climate crisis. The order highlights the administration’s determination to use all the resources of the federal government to combat the threat that climate change poses to financial stability.
The order requires the National Economic Council to develop a comprehensive climate finance strategy for the entire federal government, calls on Treasury Secretary Janet Yellen to draft a report with members of the Financial Stability Oversight Council of recommendations for reducing climate risks to financial stability, including the risks that banks create when they finance fossil fuels. It also directs the Office of Management and Budget to minimize climate-related risk in federal lending and procurement, and report on climate risks to the federal government’s budget.
The order also encourages the Department of Labor to quickly reverse a set of damaging rules developed during the Trump era that would punish pensions and retirement plans for sustainable investing, a step that will ward off some risks to current and future retirees.
“This order sends an important message that the Biden Administration understands the urgent need to address climate-related financial risks,” said David Arkush, managing director of Public Citizen’s Climate Program. “It makes clear that financial regulators have a responsibility to mitigate those risks—including the ones that financial institutions create by financing emissions.”
The order asks Yellen to issue a report on reducing climate-related risks to financial stability through supervision and prudential regulation within 180 days.
“We need regulators to heed this call to develop climate-related financial regulations with teeth that push more money away from the activities that increase systemic financial risk and worsen the climate crisis, and towards development consistent with US policy to meet urgently needed climate targets,” said Alex Martin, senior policy analyst at Americans for Financial Reform Education Fund. “Economic, racial, and environmental justice principles and priorities need to be integrated into these regulatory moves every step of the way. Wall Street’s business as usual approach will not work for climate or for people.”
The order also directs the Federal Insurance Office to work with state regulators to examine the potential for major disruptions to insurance coverage in parts of the country vulnerable to climate change. Insurance companies are primarily regulated by state insurance departments.
In the coming months, the administration must continue to listen to the views of public interest advocates and those most harmed by climate change impacts, and not allow Wall Street to dictate the terms and profit from the transition to a cleaner economy. Americans for Financial Reform Education Fund and Public Citizen outlined recommendations on climate-related financial risk in their Climate Roadmap for U.S. Financial Regulation.