The day after the Labor Department released proposed guidance addressing the use of ESG factors in selecting plan investments, the Biden administration released a strategy report outlining its government-wide effort to address climate change.
“By addressing the costs of the climate crisis head-on, the federal government will safeguard the life savings of workers and families, spur the creation of good-paying, union jobs, and ensure the long-term sustainability of U.S. economic prosperity,” the White House stated Oct. 15 in releasing A Roadmap to Build a Climate-Resilient Economy.
The report is a followup to Executive Order 14030 released by President Biden in May, which among other things, directed the Labor Secretary to reconsider rules that would have barred consideration of ESG factors in investment decisions.
The White House notes that the roadmap “lays out a strategy to advance a whole-of-government effort that safeguards workers and families from financial loss and positions the United States for success in the fight against climate change.” Moreover, it contends that extreme weather has cost Americans an additional $600 billion in physical and economic damages over the past five years alone, and that “climate-related risks hidden in workers’ retirement plans have already cost American retirees billions in lost pension dollars.”
The administration’s strategy includes six main pillars that seek to achieve the goals of the May Executive Order:
- promoting the resilience of the U.S. financial system to climate-related financial risks;
- protecting life savings and pensions from climate-related financial risk;
- using federal procurement to address climate-related financial risk;
- incorporating climate-related financial risk into federal financial management and budgeting;
- incorporating climate-related financial risk into federal lending and underwriting; and
- building resilient infrastructure and communities.
The document notes that more than 20 agencies have already initiated climate adaptation and resilience plans to “safeguard federal investments—and taxpayer dollars—from the costs of climate change.”
Protecting Life Savings and Pensions from Climate-Related Financial Risk
In the retirement space, the roadmap points to the DOL’s proposed regulation, published Oct. 14, noting that it would make clear that investment managers can consider climate change and other ESG factors in making investment decisions. Under the proposed rule, fund managers would be better able to include in their evaluation of an investment the vulnerability to the physical and transition risks posed by the climate crisis, the strategy document argues. It further notes that they would also be able to incorporate climate-related financial risks into their decisions on how they vote on shareholder resolutions and board nominations.
“The proposed rule—which, if finalized, would help safeguard the more than half of American workers who participate in a retirement plan through their job, representing over 140 million Americans and more than $12 trillion in retirement savings and pensions—would protect workers by making sure that retirement managers don’t turn a blind eye to climate risks and other important factors,” the administration states.
The strategy document also advises that the DOL is working to “protect the nearly 6.5 million participants in the Thrift Savings Plan—the largest defined-benefit contribution plan in the world—by analyzing how to further factor in climate-related risks.”
SEC Disclosures
Also referenced in the document is an ongoing initiative by the SEC on its current climate change disclosure rules. It notes that the SEC staff is developing recommendations to the Commission for a mandatory disclosure rule for public issuers that is “intended to bring greater clarity to investors about the material risks and opportunities that climate change poses to their investments.”
The comment period for the SEC initiative closed in June, wherein the American Retirement Association extended its support for the Commission’s review of company disclosures. The ARA noted, among other things that “clear, consistent information about climate change which investors of all types can easily understand and compare is essential.” The White House notes that this rule is expected to be proposed in the coming months.
Additionally, the White House advises that a forthcoming report from the Financial Stability Oversight Council (FSOC) will be a first step in a process of U.S. financial regulators developing the capacity and analytical tools to mitigate climate-related financial risks.
The Treasury Department’s Federal Insurance Office also has launched a process to address climate-related risks in the insurance sector, with a focus on assessing the availability and affordability of insurance coverage in high-risk areas for traditionally underserved communities, the strategy document further notes.
