On May 20, 2021 President Biden issued Executive Order 14030 (EO 14030) on climate-related financial risk. 

The order aims to do several things, including educating the American people on how climate change impacts financial security, strengthening the U.S. financial system, and forming concrete plans for the government to minimize climate-change risks. 

How does this order affect businesses? Unfortunately, we don’t know all of the ways it will yet. 

From the outlines, we do know the aims of the order for businesses; however, we do not yet have details for how these aims will be put into action. 

The main aim of the order for businesses is to increase all disclosure of climate-related financial risk by both the public and private sector. Businesses can expect expanding disclosure and reporting obligations on climate-related financial risks. 

There will also be increased scrutiny of organizations regarding those expansions. 

So when will businesses know more? 

The order calls for several different sectors of the federal government to report on and create plans for climate-related financial risk as it concerns their departments. Set time limits were given to each sector. 

As each department releases their statements, we will see an increase in the knowledge of how this order affects individual businesses. 

The order called for the following first steps: 

  • Develop a Whole-of-Government Approach to Mitigating Climate-Related Financial Risk. This section of the order calls for the National Climate Advisor and the Director of the National Economic Council to develop a comprehensive plan to identify and disclose climate-related financial risk to government programs, assets, and liabilities. It also will include the identification of public and private financing needed to help the economy reach net-zero emissions by 2050. The order has allotted 120 days for the creation of this plan. 
  • Encourage Financial Regulators to Assess Climate-Related Financial Risk. The order asks the Treasury Secretary, who also stands as chair of the Financial Stability Oversight Council, to assess climate-related financial risk to the stability of both the federal government and U.S. financial system. It was recommended Secretary Janet Yellen release a report in 180 days on actions her council recommends to reduce risks to financial stability and plans to incorporate climate-related financial risk assessment into regulatory and supervisory practices. 
  • Bolster the Resilience of Life Savings and Pensions. The Order directs the Labor Secretary to suspend, revise, or rescind any present regulations that bar investment firms from considering environmental, social, and governance (ESG) factors in investment decisions related to worker’s pensions. It also asks for a report on the Federal Retirement Thrift Investment Board’s ESG considerations. 
  • Modernize Federal Lending, Underwriting, and Procurement. This section of the order calls for the improvement of federal financial management and reporting of climate-related financial risk. It includes new requirements for major federal suppliers to disclose greenhouse gas emissions and any other climate-related financial risks. Then it directs any federal agency procurements to minimize those risks. 
  • Reduce the Risk of Climate Change to the Federal Budget. This section asks that the federal government annually develop and publish an assessment of its climate-related fiscal risk exposure. It directs the Office of Management and Budget to reduce exposure through reformulating both the President’s budget and the oversight of budget execution. 

For now, the order mainly affects the internal workings of the federal government. 

Despite this, there’s potential for the order to affect businesses more as the reports from each department roll in. From the above summary, which you can read more about on the White House’s Fact Sheet, we do know businesses can expect several changes coming. 

One thing businesses can expect is mandatory rules on climate disclosure. Any company that plans to borrow from or provide goods and services to the federal government can expect to be required to disclose greenhouse gas emissions and climate-related financial risks. 

Additionally, businesses will likely be expected to set science-based goals to reduce greenhouse gas emissions. Preference of federal purchasing will then be given to bids and proposals from suppliers who have lower climate-related financial risk. 

The recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) will likely also standardize this disclosure to encompass all U.S. businesses. 

Although we do not yet know the minute details of how the order will directly impact businesses, we can be sure that it will. As reports from the departments are released, more knowledge should become available allowing businesses to better prepare for changes. 

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Although there are still so many unknowns on how the Executive Order on Climate-Related Financial Risk will impact your business, it’s important to position yourself to be able to respond to any changes quickly. One of the first steps is conducting an energy audit to see where your energy usage is at now and making changes to decrease your impact. With EMAT Field Auditor, you can conduct this audit more quickly, with fewer mistakes, and at less cost to you than a traditional audit. Schedule a demo today!

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