By Jeffrey Karp, Senior Counsel, and Edward Mahaffey, Law Clerk
On May 20, 2021, President Biden issued an Executive Order on Climate-Related Financial Risk. The Executive Order seeks "to advance consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk." According to the president, the Order is necessary due to "[t]he failure of financial institutions to appropriately and adequately account for and measure these physical and transition risks," which "threatens the competitiveness of U.S. companies and markets, the life savings and pensions of U.S. workers and families, and the ability of U.S. financial institutions to serve communities."[1] Physical risks are damages caused by an increase in the frequency or severity of weather events or other climate shifts.[2] Transition risks are more indirect; they arise from changes in policy, technology, or consumer behavior that lead to a lower-carbon economy.[3]