On October 14, 2021, United States President Joe Biden’s administration released “A Roadmap to Build a Climate-Resilient Economy” (the “Report”). The Report was prepared pursuant to Executive Order 14030 (U.S. Climate-Related Financial Risk) (“E.O. 14030”), which was signed by President Biden on May 20, 2021.

At 40 pages, the Report is described as a “roadmap” that “lays out a strategy to advance a whole-of-government effort” that will “build climate resilience throughout the U.S. economy and drive better long-term investment outcomes for ordinary Americans.” Notably, the Report introduces a Climate Risk Accountability Framework guided by five core principles. The Report also recognizes the actions already undertaken by U.S. federal agencies that address climate change, including the Securities and Exchange Commission’s pending proposal for public issuer climate disclosure requirements. Our analysis of what the SEC’s disclosure rule proposal may mean for Canadian firms can be found here on the McCarthy Tétrault Canadian Securities Regulatory Monitor.

The Climate Risk Accountability Framework

The primary focus of the Report is to introduce and substantiate the five principles guiding the White House’s Climate Risk Accountability Framework. These principles include:

  1. Mobilizing public and private finance to support the transition to a net-zero U.S. economy by pursuing strategies to unlock the private capital needed to build 21st-century jobs and infrastructure, while achieving net zero greenhouse gas emissions by 2050;
  2. Protecting climate vulnerable and disadvantaged frontline communities by making investments ensuring these communities are protected from the impacts of climate change, benefit from clean energy and climate infrastructure, and are not harmed by measures addressing climate change risk;
  3. Protecting against financial risk to the federal government and the communities it serves by ensuring that federal agencies are properly accounting for, disclosing, and mitigating these risks as they pertain to federal assets and programs;
  4. Safeguarding the U.S. financial system against climate-related financial risk by holding financial institutions accountable for properly measuring, disclosing, managing, and mitigating climate-related financial risks; and
  5. Demonstrating global leadership by engaging in international efforts underway to address climate-related financial risk, particularly in the face of global supply chains and multinational financial institutions, corporations, and other institutions that can impact U.S. markets.

These guiding principles inform the lines of action that are, or will be, undertaken by various federal agencies in furtherance of six lines of work set out in E.O. 14030:

  1. Promoting the resilience of the U.S. financial system to climate-related financial risks;
  2. Incorporating climate-related financial risk into Federal financial management
  3. Using Federal procurement to address climate-related financial risk;
  4. Protecting life savings and pensions from climate-related financial risk;
  5. Incorporating climate-related financial risk into Federal lending and underwriting; and
  6. Building resilient infrastructure and communities.

Key Initiatives Identified in the Report

The second-half of the Report identifies a number of initiatives that are predicated on the guiding principles and framework set out above. In addition to the SEC’s impending climate disclosure rule proposal, which will be introduced later this year, three other notable initiatives include:

  • The forthcoming release of a Financial Stability Oversight Council report which will discuss the importance of climate-related disclosures by regulated entities and recommended processes to identify climate-related financial risks to U.S. stability. This report is described as “the first step in a robust process of U.S. financial regulators developing the capacity and analytical tools to mitigate climate-related financial risks.”
  • The Federal Insurance Office in the Treasury Department has commenced a process to address climate-related risks in the insurance sector, focused on assessing the availability and affordability of insurance coverage for traditionally underserved communities in high-risk areas.
  • The Department of Labour (the “Department”) is proposing a rule making it clear that investment managers may consider climate change and other ESG factors in making investment decisions. The Department is of the view that the rule would protect workers’ life-savings by ensuring that retirement managers will not fail to consider climate risks and other ESG factors. This, in theory, will limit climate-related risks and allow workers to benefit from the gains coming from sustainable investments. Notably, on its own website (see https://www.dol.gov/general/topic/retirement/fiduciaryresp), the Department states that, under the Employee Retirement Income Security Act of 1974, known as ERISA, the “primary responsibility” of retirement plan administrators is to “run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses.” The rule would seem to not permit plan overseers to sacrifice returns or take on greater risks when analyzing potential investments with a focus on ESG.

The Bottom Line

The Report sets out the Biden administration’s roadmap for fostering an economy that will be resilient to the impacts of climate change. In doing so, the Report identifies five principles guiding the application of the Climate Risk Accountability Framework to actions taken by various federal agencies.

The comprehensive nature of the roadmap, as demonstrated by varied actions with targets ranging from U.S. public issuers to investment managers, signals that the application of climate-informed strategy to financial risk is no longer an afterthought, and instead has a prominent role to play in a government’s economic policy.

However, as demonstrated by administration’s ongoing struggles to advance key aspects of its climate agenda, it remains to be seen how much of the Report will be put into action. Those aspects of the agenda which do not require congressional approval may be expected to succeed in the near term.