The U.S. President Joseph R. Biden Jr. recently signed an Executive Order on the mitigation of financial risks of climate change. The Order is intended to strengthen the U.S. financial system and inform concrete decisions that the federal government can take to mitigate the risks of climate change. The Order will lead to the development of a government approach to mitigating climate-related financial risks. It will also serve to encourage financial regulators to assess climate-related financial risks and modernize the federal lending, underwriting, and procurement in this context.
As part of the Executive Order on Climate-Related Financial Risk, President Biden directed agencies analyze and mitigate the risk climate change poses to homeowners and consumers, businesses and workers, and the financial system and Federal government too. The Executive Order appears to be a significant step forward for the U.S. federal government, including its financial regulatory agencies, to begin to incorporate climate-risk and other environmental, social, and governance (ESG) issues into financial regulation. The Executive Order:
- Requires National Climate Advisor and the Director of the National Economic Council to develop, within 120 days, a comprehensive government-wide climate-risk strategy to identify and disclose climate-related financial risks to government programs, assets, and liabilities. This strategy will identify the public and private financing needed to reach economy wide net-zero emissions by 2050, while advancing economic opportunity, worker empowerment, and environmental mitigation.
- Encourages the Treasury Secretary, in her role as the chair of the Financial Stability Oversight Council, to work with Council members to assess climate-related financial risk to the stability of the federal government and the stability of the U.S. financial system. In her role as the chair, she should work with member agencies to consider issuing a report, within 180 days, on actions the Council recommends to reduce risks to financial stability, including plans that member agencies are taking to improve climate-related disclosures and other sources of data, and to incorporate climate-related financial risks into regulatory and supervisory practices.
- Directs the development of recommendations for improving how federal financial management and reporting can incorporate climate-related financial risks, especially as that risk relates to federal lending programs. It also requires consideration of new requirements for major federal suppliers to disclose greenhouse gas emissions and climate-related financial risks and to ensure that major federal agency procurements minimize those risks.
- Moves focus on the development of a government-wide strategy on financing needs associated with achieving net-zero greenhouse gas emissions for the U.S. economy by no later than 2050, limiting global average temperature rise to 1.5 degrees Celsius, and adapting to the acute and chronic impact of climate change.
Keywords: Americas, US, Banking, Insurance, Securities, Climate Change Risk, ESG, Reporting, Lending Program, Disclosures, Sustainable Finance, Net Zero Economy, Low-Carbon Economy, White House
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.
The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.