Climate action is now under way in Washington on three tracks: executive orders from the White House, legislation in Congress, and policy changes in federal agencies. President Joe Biden’s climate-related executive orders went into effect on January 27, 2021, exactly one week after he moved into the Oval Office. “We’ve already waited too long to deal with this climate crisis,” he declared, “and we can’t wait any longer.” The Administration’s stated goals include a pollution-free power sector by 2035 and a net-zero-emission economy by 2050.
The orders’ effects on the climate may not be apparent for some time, but many of their impacts on the business environment will be prompt and tangible.
- Established climate considerations as an “essential element of foreign policy and national security”
- Committed the nation to the Paris Agreement’s objectives, including “significant short-term global emission reductions and net zero global emissions by mid-century”
- Established a National Climate Task Force of 21 federal agencies and departments for a whole-of-government approach to the crisis
- Put a pause on new oil and gas leases on public lands and offshore waters, and directed federal agencies to eliminate fossil fuel subsidies, based on applicable law
- Set a goal of purchasing 645,000 electric vehicles for the federal fleet.
President Biden also said he aims to put millions of Americans to work modernizing water systems and transportation and energy infrastructure to withstand the impacts of extreme climate events. These orders did not come as a surprise to the corporate world, but they will force organizations to move quickly. According to Jim Barry, Global Head of BlackRock Real Assets, “The pace of the energy transition will be quicker this time because the need is more immediate.” Companies will likely face more pressure to disclose their climate risks to the public and demonstrate to investors that they are addressing those risks.
These efforts are much more than window dressing: many leaders across industries already equate climate risk to financial risk. They are investing more to assess and manage risks such as supply-chain interruptions—and seize emerging opportunities.
In a KPMG survey1 of senior executives in the U.S. in 2020, nearly six in ten said they already report publicly on climate-related risk. In this brief memo, we outline the changes we anticipate in Washington, describe new opportunities and discuss steps organizations should take now to get ahead of a sharp curve.
Potential legislation and policy changes
Congress will consider a raft of climate-related legislation in the months ahead which could include, among other things, new and enhanced tax incentives for renewable energy and clean energy technologies. Winning passage would require considerable political capital, however, particularly in the Senate. To help broaden the appeal of climate action, the White House emphasizes infrastructure investment and job-creation whenever it raises the topic.
Changes through federal agencies will likely come more quickly and with less debate. Treasury Secretary Janet Yellen, for example, has called climate change an “existential threat,” noting that it could raise financial system risks, and suggesting that tax incentives could advance climate action.
Secretary Yellen co-chaired a team in the Group of Thirty2 that published “Mainstreaming the Transition to a Net-Zero Economy” in October 2020. The report supported carbon pricing, asserting that “the financial system must…redirect capital toward more sustainable technologies and organizations.” Given the “unique characteristics of climate risks,” the report said “central banks and supervisors will need to extend and adapt their existing stress-testing frameworks.” Based on Secretary Yellen’s interest in this topic, we would not be surprised if the Treasury Department provided new guidance in the tax credit area and devoted resources to evaluating carbon pricing, among other efforts.
The courts will also play a role in climate action. On January 19, 2021, for example, a three-judge panel of the U.S. Court of Appeals for the District of Columbia vacated the Trump administration’s rollback of Obama-era greenhouse gas emission standards for power plants. In the wake of that decision, the EPA will likely roll out new regulations.
Before she became the acting head of the Securities and Exchange Commission (SEC) in January 2021, Allison Lee called for more corporate climate-related reporting. Since taking office, she has hired Satyam Khanna to fill a new role at the SEC: senior policy adviser for climate and environmental, social and governance (ESG). In September 2020, a subcommittee of the Commodity Futures Trading Commission (CFTC) made non-binding recommendations that the SEC, CFTC and other federal regulators do more to measure, understand and address the financial risks of climate change. (We will address ESG disclosure trends in a forthcoming report.)
Indeed, all federal agencies are now tasked with evaluating their own climate resiliency and providing communities with data and insights to help them improve their resiliency.
Federal procurement rules may soon require at least some vendors to meet certain climate performance requirements and, report on upstream and downstream greenhouse gas emissions. President Biden has directed federal agencies “to procure carbon-pollution-free electricity and clean, zero-emission vehicles.” He has yet to specify a timeline, but any changes in procurement policies could have major effects, since the U.S. government is the world’s largest consumer, purchasing more than half a trillion dollars’ worth of goods and services annually.
Vast investments in infrastructure and training will be required to speed the transition to a low-carbon economy. Workers with up-to-date skills in construction, manufacturing and engineering will be in high demand, for example, as solar and wind projects ramp up, electric vehicle adoption accelerates, and low-carbon infrastructure and green cities move from blueprint to concrete.
The Administration may direct some investments to redress inequities and advance “climate justice,” such as by avoiding the common practice of building energy infrastructure in low-income communities. Energy-sector investors and lenders who can analyze, influence and explain projects’ effects on climate justice may avoid risks and gain competitive advantages.
Indeed, across industries, companies may gain a host of advantages by gathering and analyzing more data to develop and adjust climate action plans, help the country stay on its carbon abatement path, and anticipate climate and economic impacts. These data-related advantages may be especially valuable for organizations that serve federal and state governments.
Steps to take now
Each public company should take action now to prepare to meet rising standards:
- Gain an accurate understanding of its carbon footprint, regularly evaluate its carbon-reduction targets and climate goals, and draft a detailed roadmap showing how it will meet its goals, including the financial implications.
- Prepare to report more extensively and more transparently on climate risks, targets, and goals. These and other ESG disclosures will only become more important as investors and rating agencies rely on them more heavily.
- Raise these topics on the board’s agenda. Investors, customers, employees, potential recruits, communities, and regulators will demand more details about organizations’ climate risks and carbon abatement efforts—and their effects on revenue and earnings–as well as cumulative reductions in emissions and other environmental impacts.
- Work closely with vendors and customers to reduce carbon impacts throughout the supply chain. Leaders across industries, including Microsoft, Walmart and Salesforce, are stepping up their commitments to emission reduction.
- Help senior executives, including those in finance, accounting, operations, risk, marketing, human resources, and investor relations, understand disclosure trends, their organizations’ energy transition and climate plans, and how those plans will affect growth and profits, brand reputation, talent strategy and M&A strategy, among other things.
Many organizations are also evaluating their products and services to see which might play a role in meeting the climate challenge. Some are forging new partnerships with non-governmental organizations (NGOs), universities and scientific bodies to accelerate innovation in this area. Leading banks have announced climate plans, including investments in climate technology and zero-carbon goals.
In short, as the Biden Administration turns to data and science for policymaking, organizations of all kinds would be wise to get on the same page. Progress will require worldwide contributions and cooperation.
“There is no vaccine for climate change. Companies must play a leading role, alongside governments and citizens, to decarbonize the global economy.”
—Mike Hayes, Global Head of Renewables for KPMG International and Global Head of Climate Change & Decarbonization for KPMG IMPACT
1. “Climate change and corporate value: What organizations really think,” KPMG International and Eversheds Sutherland, November 2020
2. The G30, a body of leaders from the public and private sectors and academia, "aims to deepen understanding of global economic and financial issues, and to explore the international repercussions of decisions taken in the public and private sectors." (www.group30.org)