LEGAL


Federal Reserve Completes the Climate Change Trifecta. Where Did Tis Begin? By Keith Thornburg, Vice President and General Counsel


Recent action by the Federal Reserve follows activity from the  Comptroller of the Currency and completes a regulatory trifecta on how climate change could affect the safety and soundness Tese assessments will affect policies that influence supervision and regulation.


Te Fed is seeking comments on draſt principles for a high-level framework for safe and sound management of physical and transitional risks associated with climate change for supervised institutions exceeding $100 billion in assets (federalreserve.gov/ newsevents/pressreleases/files/other20221202b1.pdf). Climate- related financial risk is the most significant environmental concern in ESG — environment, social and governance.


ESG originated with a 2004 United Nations Global Compact report (unepfi.org/fileadmin/events/2004/stocks/ who_cares_wins_global_compact_2004.pdf) that outlined “recommendations by the financial industry to better integrate environmental, social and governance issues in analysis, asset management, and securities brokerage.” Since then, more than 21,000 companies have joined the compact (unglobalcompact. org/what-is-gc/participants).


Te “path” charted by the UN never contemplates implementation of ESG via law. Rather, implementation is through private companies and advisors and managers in investments and banking. Te institutions writing the report recommended a nine-point plan of implementation.


1. Investment analysts and academic research institutions incorporate ESG into research.


2. Financial institutions integrate ESG systematically into their research and investment processes.


3. Companies take a leadership role to implement ESG in their policies and report ESG performance to investors.


4. Investors actively request ESG research and reports and reward well-managed companies.


5. Pension fund trustees and their consultants implement ESG, and this is reinforced by government agencies overseeing pension funds.


6. Financial consultants and advisors use and apply ESG industry research and share their ESG experience with market actors and companies.


7. Financial regulators shape regulatory frameworks to promote ESG disclosure and accountability with standards to be market driven, and that regulatory analysts participate in ongoing and global reporting initiatives.


8. Stock exchanges include ESG in listing requirements and that self-reporting organizations, credentialing entities, accounting standards bodies and rating agencies and index providers likewise incorporate ESG.


9. Nongovernment organizations promote ESG transparency.


Te U.S. Congress has not enacted ESG. However, President Biden’s administration aggressively picked up the climate change construct presented in Item 7, issuing several executive orders directing an all-government approach to frame executive decisions, actions (and inactions), regulations and guidance to account for climate change factors.


Your MBA legal and government affairs team monitors international, federal and state level developments related to ESG and works to educate and inform public officials of the impact of ESG policies to our members and their communities.


THE MISSOURI BANKER 9


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