Climate Risk a New Regulatory Risk? [Executive Branch Review]

Climate Risk a New Regulatory Risk? Implications for Financial Regulatory Control of the Financial System

Deploying a “whole-of-government approach” to climate change, the Biden Administration has sought to disincentivize the production, generation, and use of fossil fuels in the United States and globally, with an eye toward achieving “economy wide net zero emissions by 2050.” While geopolitical dynamics – including the war in Ukraine – now threaten to derail some of those plans (at least temporarily), the Biden Administration is pressing ahead with a variety of measures to accelerate the transition away from oil, natural gas, coal, and other fossil fuels. Financial levers and economic metrics are emerging as key tools for achieving the administration’s targets.

Last year, President Biden issued Executive Order 14030 on “Climate-Related Financial Risk,” which directed a variety of financial regulatory agencies to address climate-related financial issues. For example, Executive Order 14030 instructs the Financial Stability Oversight Council (FSOC) to take steps to incorporate “climate-related financial risk into regulatory and supervisory practices.” Most recently, in March 2022, the Securities and Exchange Commission (SEC) proposed new climate mandates to require publicly-traded companies to disclose company-wide emissions (including emissions up and down their supply chains). The SEC proposal would also require disclosure of corporate “governance” of climate-related risks and relevant “risk management processes,” along with climate-related financial statement metrics, targets, and “transition plans.” Climate-related actions are also being taken at the Federal Reserve Board, the Commodities Futures Trading Commission, the Federal Housing Financing Agency, and the Treasury Department’s Federal Insurance Office. Even more broadly, the President has directed federal agencies to restore the use of an Obama-era metric known as the “Social Cost of Greenhouse Gases” for a wide range of agency decisions and programs. These government initiatives build on non-governmental ESG programs – a key focus of many activist shareholders - that are forcing closer corporate scrutiny of climate-related concerns.

This panel will debate the legal, policy, and economic merits of efforts to use these and other financial measures to address climate change and drive energy transition in the private sector. Are these measures lawful? Has Congress authorized them? Are financial regulators equipped to engage in these areas? Do market failures justify these interventions? What are the costs and benefits of these new measures? And how will the courts as well as the investment community respond and react?

Featured:

- Prof. Jeremy Kress, Assistant Professor of Business Law, Michigan Ross; Co-Faculty Director, Center on Finance, Law & Policy, University of Michigan
- Mr. Paul H. Kupiec, Senior Fellow, American Enterprise Institute
- Prof. Christina P. Skinner, Assistant Professor of Legal Studies & Business Ethics, The Wharton School, University of Pennsylvania
- Mr. Graham Steele, Assistant Secretary for Financial Institutions, U.S. Department of the Treasury
- Moderator: Mr. Jeffrey H. Wood, Partner, Baker Botts; Former Acting AAG, Environment and Natural Resources Division, U.S. Department of Justice

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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.