President Biden’s recent executive order addressing climate-related financial risk highlights the need for businesses to examine and evolve their Environmental, Social and Governance (ESG) policies.
On May 20, 2021, President Biden signed the “Executive Order on Climate-Related Financial Risk.” The order serves to emphasize the administration’s focus on addressing issues within the private sector related to climate change. Specifically, it empowers the federal government to establish a comprehensive strategy to measure, assess and disclose “climate-related financial risk” so that regulators can assess private entities’ “climate-related financial risk.” Furthermore, the order proposes a reevaluation of public investment strategy to consider climate-conscious assets and markets, while avoiding assets and markets that may be more predisposed to climate-related risk.
The order comes as consumers express greater concern with the risks associated with climate change and the roles businesses and individuals play in exacerbating or mitigating such risks. When viewed in conjunction with the president’s previous order titled, “Tackling the Climate Crisis at Home and Abroad,” this new order demonstrates that the administration continues to assert its intent to address consumers’ concerns about climate change and how the private sector can address that issue.
Consumers’ concerns over climate change, when combined with the federal government’s increasingly active role in addressing the issue, reinforce the need for businesses to evolve their ESG policies. Consumers and investors, along with the federal government, are increasingly demanding more from businesses, particularly in addressing the impact that those businesses have on climate change.
Caleb Tingstad is a summer associate at Fox Rothschild.
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