ESG Compliance: Climate-Related Financial Risk

Climate risk disclosure has been a major focus under the current administration. Last quarter, President Biden issued an executive order noting the importance of “advanced, consistent, clear, comparable, and accurate disclosure of climate-related financial risk.” The Securities and Exchange Commission ("SEC") is currently seeking public input and has announced that corporate disclosures relating to climate-related risks will receive scrutiny. The goal is to make the global energy sector reach a zero-emission capacity by 2050. In addition, pressure is gearing up to dissipate climate risk and completely reduce fossil fuel investments on a global scale.

Objectives of the Executive Order

Some of the objectives of the executive order include:

1. Encouraging financial regulators to scrutinize climate-related financial risk
2. Increased life savings and pensions: This objective of the executive order aims to direct the Labor Secretary to look towards assessment, revision or suspension of rules from the previous administration that may have discouraged investment firms from including social, economic, environmental factors and climate-related risks within investment decisions
3. Improving financial management, federal lending, underwriting and procurement
4. Bolstering SEC efforts in assessing corporate disclosure rules
5. Encouraging the Federal Acquisition Regulation Council to consider amending the Federal Acquisition Regulation ("FAR") to ensure federal suppliers disclose their climate-risk reduction objectives
6. Standardization of Disclosure