State of Play – Climate Risk

Fundamental change to the US’s approach to climate change will remain a top issue for the Biden Administration across almost every government vertical. In fact, the Biden transition has communicated a focus on climate risk as one of its four pillars in discussions with outside groups. We expect the incoming administration to first focus on areas where they can take immediate action including through executive orders and rejoining the Paris Climate Agreement and to rely on key Administration officials to coordinate regulatory action around climate risk. In the financial regulatory area, we expect increasing focus on regulatory actions and tools that can be used to align with the Administration’s focus. The White House, FSOC, Federal Reserve, SEC, and CFTC will play key roles in driving policy and setting expectations for the financial industry to manage and mitigate associated financial risks, although major regulatory actions may be delayed past the first 100 days until we are on a stable path to economic recovery.

Comprehensive climate legislation is unlikely to pass in 2021. This is due in part to a likely split Congress and the slim House Democratic majority. Rather, we expect any attempts for congressional action to focus on investments in energy, climate research, and technologies as addons to larger, likely bipartisan bills (e.g. appropriations, infrastructure, defense, stimulus). We also expect continued partisan posturing by Congress in its oversight of financial regulatory actions related to climate risks. Below we provide an overview of recent activity at the financial regulatory agencies and what to expect under the new Administration.