Yesterday, President Biden signed an executive order requiring his administration to disclose financial risks associated with climate change initiatives as part of the budgeting process.
The Order requires The Director of OMB, along with the Secretary of the Treasury, the Chair of the Council of Economic Advisers, the Director of the National Economic Council, and the National Climate Advisor to:
- Identify the primary sources of Federal climate-related financial risk exposure;
- Develop methodologies to quantify climate risk;
- Improve the accounting of climate-related Federal expenditures, where appropriate, and,
- Reduce the Federal Government’s long-term fiscal exposure to climate-related financial risk through the budgeting process.
Under the Order, agency personnel must apply behavioral sciences insights and risk analysis to mitigate climate change risks. In addition, federal employees must account for the impacts on disadvantaged communities and communities of color in their assessments. The Order puts a premium on creating well-paying jobs while achieving a net-zero emissions economy no later than 2050.
The Order recognizes the risks of extreme weather to disrupt supply chains when shifting away from carbon-intensive energy sources yet argues that such a shift enhances U.S. competitiveness and economic growth while creating well-paying job opportunities.
Those involved in the coordination of the Order have 120 days from yesterday to develop a comprehensive Government-wide strategy to, among other things, identify the financing needs associated with achieving net-zero greenhouse emissions by 2050 and limiting global temperature rises to 1.5 degrees Celsius. In addition, the group must identify public investment opportunities that can advance economic opportunities, especially in disadvantaged communities and communities of color.
In addition to economic enhancements, the Order requires major Federal suppliers to disclose greenhouse gas emissions and climate-related financial risks publicly. Further, they must set science-based reduction targets. At the same time, Federal procurement officers must work to minimize climate change risks, including requiring an assessment of the social cost of greenhouse gas emissions when making procurement and federal lending decisions. Federal agency Climate Action Plans require their Federal Chief Sustainability Officers [i] to submit to the Director of OMB, the National Climate Task Force, and the Federal Chief Sustainability Officer actions to integrate climate-related financial risk into their respective agency’s procurement process. Chief Sustainability Officer shall guide agencies on existing voluntary standards for use in agencies’ plans.
The Order reinstates the Federal Flood Risk Management Standard (FFRMS) revoked under the Trump administration. The Process for soliciting and considering stakeholder Inputs in federal flood management remained in effect.
[i] Chief sustainability officers are responsible for an organization’s objectives and initiatives relating to sustainability. Sustainability is defined by the United Nations as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”