The gathering of the family of nations in Glasgow, Scotland for COP26 (the annual United Nations Climate Change Conference) is drawing near. There is an increasing flow of news and opinion related to the big event as the UN, almost 200 sovereign governments, NGOs, corporations, and other constituencies announce a widening range of developments related to the coming summit.
In the U.S., a significant announcement came on October 21 as the Federal government’s Financial Stability Oversight Council issued a report on the financial risks of climate change. Before reviewing this report, we share some important background with you:
In May 2021, the Biden-Harris Administration detailed the policies and actions of its “whole of government” approach to climate-related financial risks in the U.S. Climate-Related Risk Executive Order (EO 14030). EO 14030 set out the Federal government’s climate risk accountability framework and the implementation strategies for Federal agencies including NASA; DoD; Labor; Interior; HHS; Education; the Federal Acquisition Council (considering GHG emissions when making buying decisions) …and many more.
To review: there are six important “workstreams” in the Federal government’s framework to address climate-related financial risk:
- Protecting the resilience of the U.S. financial system.
- Protecting life savings and pensions.
- Using Federal procurement (Federal agencies are the largest buyers of goods and services in the nation).
- Incorporating the risks into Federal lending and underwriting.
- Incorporating the risks into the Federal financial management and budgeting.
- Building resilient infrastructure and communities.
The policies and implementation steps by Federal agencies are again in public view as President Joe Biden prepares to participate in the COP26 summit. The White House reminded us of EO 14030 in a news announcement (“A Roadmap to Build a Climate-Resilient Economy”) on October 14.
This was the backdrop for the announcement from the powerful FSOC on October 21, which identified climate change as “an emerging and increasing threat to financial stability.”
The work of the regulatory agencies in the FSOC affects many aspects of the American society: the Federal Reserve System and twelve district banks; Department of Treasury; Office of Comptroller of Currency, part of Treasury that regulates national banks; Securities & Exchange Commission; Commodity Trading Futures Commission; and Federal Housing and Finance Agency.
The FSOC’s new report demonstrates the commitment of the FSOC and its member agencies to building on and accelerating existing efforts on climate change through “concrete recommendations” to the individual member agencies.
Commenting on the latest developments at FSOC, Treasury Secretary Janet Yellen, also a former Federal Reserve chair, noted, “the FSOC report puts climate change squarely at the forefront of the agenda of [Council member agencies] and is a critical first step forward in addressing the threat of climate change…it will by no means be the end of this work.”
We share the important documents related to these developments in this issue.