In a sweeping order, President Biden on Thursday directed federal agencies to find ways to mitigate the financial risks that climate change poses to businesses and consumers.

The executive order (EO) on climate-related financial risks is calling for a government-wide strategy to be developed within three months. It also calls for an annual assessment in the U.S. budget of related fiscal risks. The EO would use the power of the federal government’s purchasing power by requiring major suppliers to disclose their greenhouse gas (GHG) emissions and related risks. 

“This cannot be optional; this cannot be voluntary,” White House climate adviser Gina McCarthy said during a press briefing Thursday. “The stakes are simply too high. The federal government has to lead by example.”

McCarthy and National Economic Council Director Brian Deese were tasked with overseeing the strategy. The goal is designed to work in tandem with the administration’s 2050 net-zero emissions goal. Biden has set a goal to cut U.S. GHG emissions by half by 2030.

The EO would provide “consistent, comparable and accurate disclosures” of climate-related financial risks, as well as address the impacts on communities of color, Deese said in the briefing.

“Our modern financial system was built on the assumption that the climate was stable,” he said. “And that assumption has largely dominated existing financial models…It underpinned the way that we invest capital, the way that we have built society, and the way that we have forecasted for the long term. Today, it’s clear that we no longer live in such a world.”

The order also paves the way for the Office of Management and Budget, as well as the Treasury and Labor secretaries, to play key roles. 

Treasury Secretary Janet Yellen, who chairs the Financial Stability Oversight Council, would work with the Federal Reserve Bank (Fed), Securities and Exchange Commission (SEC) and other regulators to review climate risks to the federal government and the nation’s financial system.

“Our pensions, our savings, our future livelihoods depend on the financial sector to build a more sustainable and resilient economy,” Yellen said. “We all need to have the best tools and the best data to make well informed decisions. This executive order puts us on the path to get there.”

Agencies including the Fed already are working to assess financial climate vulnerabilities. 

Last September the Commodity Futures Trading Commission became the first U.S. agency to formally note that rising temperatures could impact the nation’s financial stability. In addition, the SEC in March requested public input about how to ensure public companies were transparent in disclosing financial risks from climate change.

Decreased National Security?

While embraced by environmental groups and climate activists, the nation’s oil and gas industry expressed concerns about the EO. The American Exploration & Production Council (AXPC), which represents some of the largest upstream oil and gas producers in the United States, warned that the EO’s intent was misguided. 

“We support transparent financial and climate-related disclosures that are material to the entity that is reporting so that people can make informed decisions,” said AXPC CEO Anne Bradbury. “As important, policymakers must avoid new climate disclosure rules that discriminate against American oil and gas producers. 

“Discriminating against American oil and gas producers will only increase global climate risk and decrease national security by shifting energy production to foreign countries that lack America’s rigorous environmental standards.”

The “sweeping and misguided” policies “disguised as financial policies will only mislead investors and unnecessarily limit opportunities for American families and American businesses,” Bradbury said. “It is critical that U.S. financial policies not be misused to penalize American oil and gas workers, move production overseas, or increase costs to American families and businesses.”

AXPC members represent a Who’s Who of Lower 48 oil and gas powerhouses including Antero Resources Corp., Apache Corp., Ascent Resources LLC, Cabot Oil & Gas Corp., Chesapeake  Energy Corp., Cimarex Energy Co., ConocoPhillips, Devon Energy Corp., Diamondback Energy Inc. and Encino Acquisition Partners LP. 

Members also include Enerplus Resources (USA) Corp., EOG Resources Inc., EQT Corp., Gulfport Energy Corp., Marathon Oil Corp., Oasis Petroleum Inc. Occidental Oil & Gas Corp., Ovintiv Inc., PDC Energy Inc., Pioneer Natural Resources Co.., Seneca Resources Corp., SM Energy Co., Southwestern Energy Co., Whiting Petroleum Corp. and ExxonMobil’s XTO Energy Inc.