The White House has issued an Executive Order expressing its policy "to advance consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk. including both physical and transition risks." The EO states that the "intensifying impacts of climate change present physical risk to assets, publicly traded securities, private investments, and companies-such as increased extreme weather risk leading to supply chain disruptions. In addition, the global shift away from carbon-intensive energy sources and industrial processes presents transition risk to many companies, communities, and workers. At the same time, this global shift presents generational opportunities to enhance U.S. competitiveness and economic growth, while also creating well-paying job opportunities for workers."
The EO directs the Treasury Secretary, as Chair of the Financial Stability Oversight Council, to engage with other members of the FSOC, which includes the Chair of the SEC, to consider, among other things, comprehensively assessing the climate-related financial risk to the stability of the U.S. financial system and issuing a report on any efforts by FSOC member agencies to integrate consideration of climate-related financial risk in their policies and programs-including the necessity of enhancing "climate-related disclosures by regulated entities" and a recommended implementation plan. What are included as "regulated entities"? According to Bloomberg, the director of the National Economic Council told reporters that both "publicly traded companies and privately held businesses could fall under the scope of the FSOC's efforts." The report would also discuss "any current approaches to incorporating the consideration of climate-related financial risk into their respective regulatory and supervisory activities and any impediments they faced in adopting those approaches."
The EO also directs the Federal Acquisition Regulatory Council to consider requiring "major Federal suppliers to publicly disclose greenhouse gas emissions and climate-related financial risk and to set science-based reduction targets; and. ensure that major Federal agency procurements minimize the risk of climate change, including requiring the social cost of greenhouse gas emissions to be considered in procurement decisions and, where appropriate and feasible, give preference to bids and proposals from suppliers with a lower social cost of greenhouse gas emissions."
As reported by Bloomberg, Secretary of the Treasury Janet Yellen, said "she would work with those agencies to improve climate-related financial disclosures so the government, regulated financial institutions, and investors alike have the data they need. 'Our pensions, our savings, our future livelihoods depend on the financial sector to build a more sustainable and resilient economy. We all need to have the best tools, the best data to make well informed decisions,' she said." As the article notes, while the SEC is an independent agency, as a member of the FSOC, it is still expected to follow Yellen's lead.
SideBar
Earlier this month, as reported by Bloomberg, Acting Corp Fin Director John Coates told a webinar audience that the SEC was moving quickly on rulemaking for mandatory climate and other ESG disclosures. Coates said that he expects the SEC to soon be in a position to review and consider staff proposals for prescriptive rules on ESG addressing both general and industry-specific requirements. Coates confirmed that, based on his conversations with the new SEC Chair, Gary Gensler, he expects that Gensler will continue the focus on ESG that was initiated by former Acting Chair Allison Lee. (See this PubCo post.) In March, in remarks to the Center for American Progress, entitled A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC, Lee provided important insights into where the SEC was headed with regard to ESG issues. As Lee confirmed in the introduction to her speech, "no single issue has been more pressing for [her] than ensuring that the SEC is fully engaged in confronting the risks and opportunities that climate and ESG pose for investors, our financial system, and our economy." Investors are not getting the information they need, and that's why the SEC has "begun to take critical steps toward a comprehensive ESG disclosure framework." Because these issues are important for investors, "climate and ESG are front and center for the SEC." Accordingly, the SEC has "begun to take critical steps toward a comprehensive ESG disclosure framework aimed at producing the consistent, comparable, and reliable data that investors need." In March, the SEC requested public comment on climate disclosure, with the comment period closing in mid-June. (See this PubCo post.)
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