US President Joseph Biden issued the Executive Order on Climate-Related Financial Risk on May 20, 2021, directing federal agencies across the US government to take action addressing climate-related financial risk.
The executive order requires, among other things:
The administration’s increased focus on climate-related financial risk is occurring alongside a growing corporate focus on environmental and sustainability issues, which, collectively, are likely to increase the corporate appetite for renewable energy generation and drive additional investment in renewable energy projects. Renewable energy procurement by large corporate buyers has experienced significant growth in recent years, increasing from 2.76 gigawatts (GW) in 2017 to 10.6 GW in 2020. Corporate investment in renewable energy through power purchase agreements in particular increased from $11.1 billion in 2018 to an estimated $15.9 billion in 2020. Corporate procurement and investment in renewable energy is expected to expand further as more and more companies continue to work toward achieving their sustainability goals.
As it relates to climate-related risk and disclosures in the US financial system, the executive order directs the US secretary of the treasury to engage the Financial Stability Oversight Council (FSOC), established under the Dodd-Frank Wall Street Reform and Consumer Protection Act to monitor the US financial system, to do the following:
The release of the executive order is one of several actions the Biden-Harris administration has taken in recent months to address climate-related financial risk. On April 22, 2021, the administration released its US International Climate Finance Plan, which highlighted efforts the administration intends to undertake to drive investment in developing countries to reduce or avoid further greenhouse gas (GHG) emissions and mitigate the impacts of climate change and steps it will take to improve global climate disclosures.
The International Climate Finance Plan also states that the US Department of the Treasury, in coordination with other US agencies and regulatory bodies, will continue to, among other things, do the following:
In addition, the US Securities and Exchange Commission (SEC) has separately undertaken several recent initiatives related to climate disclosures, including (1) directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings, which may result in an update to 2010 SEC guidance on public company disclosure requirements related to climate change matters; (2) soliciting public comments related to updating the aforementioned 2010 guidance; and (3) directing the Division of Examinations to place a greater focus on climate-related risks in 2021.
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