US banks to face climate risk disclosure under Biden order
The Biden administration on Thursday took the first step toward forcing a broad range of US banks and companies to disclose the risks they face from climate change.
In an executive order, the White House kicked off a sweeping initiative to bolster the US financial system against climate-related risks. The order instructs Treasury secretary Janet Yellen to work with the other members of the Financial Stability Oversight Council to report how they plan to “reduce risks to financial stability”.
“Financial regulators, financial institutions, and investors need to have access to the best information and data to measure climate-related financial risks,” Yellen said.
The council, a body set up to monitor financial risks after the 2008 mortgage crisis, will work to improve climate-related financial disclosures to better measure their potential exposure, Yellen said.
The council also counts as members Federal Reserve chair Jay Powell, Securities and Exchange Commission chair Gary Gensler and the heads of other US financial regulators.
This move is the latest in a string of climate-focused actions taken by the Biden administration that bring the US closer in line with a growing list of countries putting climate change on the agenda for financial regulators and central banks.
“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 White House said.
In March, the Bank of England’s mandate was updated to include support for the UK government’s plan to cut the country’s greenhouse gas emissions.
The US move to mandate corporate climate disclosures has been in the works for months. In September 2020 the Commodity Futures Trading Commission became the first Wall Street regulator to warn about climate risks. In April 2021, White House climate envoy John Kerry said it was likely the US would “join with Europe” to require companies to disclose information on climate risk.
It comes after four years under the Trump administration, which undermined environmental regulations, pulled out of the Paris climate accord and abandoned the US’s pledges to reduce greenhouse gas emissions.
“The lack of US leadership on this issue has been an impediment to actually moving more aggressively to harmonise global approaches [to fighting climate change],” said Brian Deese, director of the White House National Economic Council. “That changes with this. And certainly the action that flows from it . . . will be concrete and rapid.”
The FSOC has been given a 180-day deadline to complete its report.
In addition, the White House is calling for the US labour secretary to change the rules governing how US retirement investors can incorporate environmental, social and governance factors and “[reconsider] the definition of fiduciary to reflect climate-related financial risk”, Deese said.
The executive order also seeks to address threats to the US government itself, including through its federal lending programmes and the “significant risk that unmitigated climate change poses to the federal budget through increased costs and lost revenue”.
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