Inside Track: Planning, Environment & Sustainability - In the media, In practice and courts, Cases and Legislation - Real Estate and Construction

On May 20, 2021, President Biden signed Executive Order 14030
(EO 14030).1 Stating that the
“intensifying impacts of climate change present physical risk
to assets, publicly traded securities, private investments, and
companies,” EO 14030 seeks to increase disclosure of
climate-related financial risk by both the public sector and
private sector. As a result, we can expect expanding disclosure and
reporting obligations regarding climate-related risks and enhanced
scrutiny of organizations subject to those obligations. A thorough
understanding of what to expect from EO 14030’s call for a
comprehensive, government-wide consideration of climate
change-related financial risks, and how the Order may impact
existing federal programs is critical to mitigating risk and
ensuring compliance. 

Summary of Executive Order 14030:

President Biden’s EO 14030 calls for “a comprehensive,
[g]overnment-wide strategy” on climate-related financial
risk.

First, the Order directs White House
policymakers to develop a strategy for identifying and disclosing
climate-related financial risk to government programs, assets, and
liabilities within 120 days. This strategy is to identify the
public and private financing needed to reach economy-wide, net-zero
emissions by 2050. Its goal is to limit global average temperature
rise to 1.5 degrees Celsius. 

Second, the Order tasks the Financial
Stability Oversight Council (FSOC) and its member agencies to
assess climate-related financial risk to the federal government and
the overall U.S. financial system. It asks FSOC members
“to consider” reporting recommendations in 180 days to
reduce such risks to financial stability. The recommended
discussion may include: the necessity of enhanced climate-related
disclosure by regulated entities to mitigate risk to the financial
system; actions FSOC agencies are now taking on climate-related
disclosures; and new regulations for identifying and mitigating
such risks.

Third, the Order directs the
Department of Labor to identify regulatory actions under ERISA and
the Federal Employee Retirement System Act to assess the threats
that climate risk may have to savings and pension plans. This
includes reconsidering rules that prohibit investment firms from
considering environmental, social, and governance (ESG) factors,
including climate-related risks, in investment decisions related to
workers’ pensions. The Order directs the Labor Department to
report on these and other measures that might be implemented within
180 days, including how the Federal Retirement Thrift Investment
Board has taken ESG factors into account.

Fourth, the Order asks White House
policymakers for recommendations for incorporating climate-related
financial risk into federal management and reporting,
“especially” federal lending programs. These should
include new accounting standards for federal financial reporting of
such risks. The Order also directs the Federal Acquisition
Regulatory Council to consider amendments to the Federal
Acquisition Regulation to require that major federal suppliers
“publicly disclose greenhouse gas emissions, and
climate-related financial risk, and to set science-based reduction
targets.” The Order encourages agencies to examine the
use of the social cost of greenhouse gas emissions in procurement
decisions. Similarly, lending and grant agencies like Agriculture,
Housing and Urban Development, and Veterans Affairs are to consider
integrating such risk assessment into their lending policies and
programs.

EO 14030 extends other recent federal efforts to increase
consideration of climate-related risks in the financial system. In
September 2020, the Commodities Futures Trading Commission issued a
subcommittee report on Managing Climate Risk in the U.S.
Financial System
.2  In early-March 2021,
the SEC then announced the creation of a Climate and ESG Task Force
in the Division of Enforcement.3 This included a call for
submission of “ESG related tips, referrals and whistleblower
complaints.” Later that month, the SEC requested public
comment on potential changes to climate risk reporting, and on ESG
disclosures more generally. A Public Statement by Acting Chair
Allison Herren Lee outlined 15 detailed questions to guide public
comment, available at https://www.sec.gov/news/public-statement/lee-climate-change-disclosures.
Comments must be submitted by June 14, 2021.

The Federal Reserve also established two committees to evaluate
climate-related financial risk. This includes a Supervision Climate
Committee, formed in January 2021.4 This committee is examining how
climate change affects individual banks supervised by the Federal
Reserve. In March, the Federal Reserve then announced a Financial
Stability Climate Committee. This committee is tasked with
identifying and addressing climate-related risks at a
macroprudential level. 

On May 28, after signing EO 14030, President Biden sent his FY
2022 budget to Congress. This includes $44.0 million in new
resources for DOJ “to advance environmental justice, tackle
climate change, and enhance environmental stability.”5

Key Takeaways

  • EO 14030 directs federal agencies to pursue policy and
    regulatory processes that may create significant, new accounting
    and reporting obligations, increase compliance obligations, and
    create enforcement and litigation risks for private firms across
    numerous industry sectors.

  • Beyond financial disclosure obligations, as the federal
    government announces more regulatory standards, consumer-facing
    advertising and other claims about climate change and
    “sustainability” may be subject to enhanced scrutiny for
    “greenwashing” by federal regulators such as the FTC, the
    DOJ, state attorneys generals, and private litigants.6 This
    may give rise to an increase in claims under various consumer
    protection statutes.

  • Accounting and disclosure changes to ERISA and FAR may generate
    collateral risk and litigation for companies that do business with
    or receive funding from federal agencies. The government is likely
    to make use of the False Claims Act to pursue investigations and
    claims involving alleged failure to comply with disclosure and
    reporting requirements.  Similarly, whistleblowers are likely
    to employ the qui tam provisions of the FCA to bring
    actions on behalf of the government and share in any recovery.

  • New disclosure and reporting requirements from federal
    financial regulators on ESG, including specifically climate change,
    should be incorporated into existing compliance programs. In order
    to meet these new requirements, additional or enhanced
    data-gathering, regarding new streams of information, may be
    required.

  • Before formal regulatory changes are adopted, current
    legal and regulatory standards based on “reasonable”
    standards of conduct may immediately begin receiving expanded
    interpretation by regulators, enforcement agencies, or private
    litigants. The DOJ, SEC, CFPB, and state and local regulators may
    take the position that current or past conduct is subject to
    obligations to consider and account for climate-related financial
    risks. Organizations should consider this risk in assessing
    current and prior conduct and the benefits of timely implementation
    of any necessary remediation measures.

For further information or questions on Presidential Executive
Order 14030 and its implications, including the expected creation
of new obligations and other corresponding federal policy changes
and related compliance and litigation risks, please contact
Jonathan D. Brightbill 
(Partner, White Collar, Regulatory Defense & Investigations),
Suzanne Jaffe Bloom  (Co-Chair,
White Collar, Regulatory Defense & Investigations), members of
the Winston & Strawn ESG Advisory Team, including Co-Chairmen
Mike Blankenship and Eric Johnson, or your Winston
relationship attorney.

We note that government orders on the federal, state, and
local level are changing every day, and the information contained
herein is accurate only as of the date set forth above.

Footnotes

1.
Executive Order 14030, 86 Fed. Reg. 27,968 (May 25, 2021),
available at https://www.govinfo.gov/content/pkg/FR-2021-05-25/pdf/2021-11168.pdf

2.
Managing Climate Risk in the U.S. Financial System (Sept.
9, 2020), available at https://www.cftc.gov/sites/default/files/2020-09/9-9-20%20Report%20of%20the%20Subcommittee%20on%20Climate-Related%20Market%20Risk%20-%20Managing%20Climate%20Risk%20in%20the%20U.S.%20Financial%20System%20for%20posting.pdf

3.
SEC Announces Enforcement Task Force Focused on Climate and ESG
Issues
(Mar. 4, 2021), available at https://www.sec.gov/news/press-release/2021-42

4.
Financial Stability Implications of Climate Change (Mar.
23, 2021), available at  https://www.federalreserve.gov/newsevents/speech/brainard20210323a.htm

5. Press
Release: Department of Justice Fiscal Year 2022 Funding Request,
available at https://www.justice.gov/opa/pr/department-justice-fiscal-year-2022-funding-request

6. Earthworks (Mar. 16, 2021),
Chevron faces unprecedent complaint over misleading consumers
on climate action
, available at https://www.earthworks.org/chevrongreenwashing/

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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