President Joe Biden signed an executive order Thursday directing federal agencies to assess and mitigate financial risks related to climate change.
Under the order, agencies are required to develop a governmentwide strategy within 120 days to measure, mitigate and disclose climate risks. Moreover, the Office of Management and Budget is required to annually publish an assessment of the federal government's climate-risk exposure.
The order also directs Treasury Secretary Janet Yellen, in her role as the chairwoman of the Financial Stability Oversight Council, to work with council members to assess climate-related financial risk to the federal government and the stability of the U.S. financial system.
"From signing a loan for a new home or small business to managing life savings or a retirement fund — it is important for the American people to have access to the information needed to understand the potential risks associated with these significant financial decisions," the White House said in a fact sheet about the order. "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."
Under a section in the fact sheet titled, "Bolster the Resilience of Life Savings and Pensions," it explains that the order directs Labor Secretary Marty Walsh to "consider suspending, revising, or rescinding any rules from the prior administration that would have barred investment firms from considering environmental, social and governance factors, including climate-related risks, in their investment decisions related to workers' pensions."
A recent Department of Labor rule promulgated under the Trump administration stipulates that ERISA plan fiduciaries cannot invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk. That rule — called "Financial Factors in Selecting Plan Investments"— took effect in January, but the Biden administration in March said it would not enforce the rule.
It's often referred to as the "ESG rule" because the initial proposal, which was unveiled in June, focused on environmental, social and governance investment factors, but the final rule walked back the ESG language.
Groups such as sustainability non-profit Ceres welcomed the Biden executive order. "With this new action by the Biden administration, investors, taxpayers and businesses will have the information they need to plan for a sustainable future and help our nation reach its critical climate goals," said Mindy S. Lubber, president and CEO at Ceres, in a statement.
On Capitol Hill, Sen. Pat Toomey, R-Pa., ranking member on the Senate Banking Committee, felt differently. The order demonstrates that the Biden administration is "preparing to misuse financial regulation to further environmental policy objectives," Mr. Toomey said in a statement "Not only would such regulation exceed the scope of financial regulators' respective missions and authorities, but it would also distort capital allocation, raise energy costs for consumers, and slow economic growth."