U.S. action on climate benefits banks, asset managers: Moody’s

An executive order from President Joe Biden on climate-related risk is a positive for the U.S. financial sector, particularly asset managers focused on environmental, social and governance (ESG) investments, said Moody’s Investors Service in a new report.

On May 20, an executive order was issued that aims to curb climate-related financial risks and promote financing for efforts to reduce greenhouse gas emissions.

Among other things, the order included a directive to the U.S. Financial Stability Oversight Council (FSOC) to assess climate-related financial risk to the stability of the U.S. financial system.

Specifically, it calls on the FSOC to facilitate data gathering and sharing, and to consider improvements to climate-related regulatory and financial disclosure.

The renewed focus on climate risk is a positive for the U.S. banking industry, Moody’s said, as it should help banks “better assess the potential consequences of climate change for their business and develop important climate risk management capabilities,” the report said.

The order also directs the U.S. Department of Labor to remove restrictions on ESG investing, which were imposed by the previous administration.

“Undoing the prior rule would place ESG investments on a level playing field with other existing actively managed investment products, increasing asset managers’ ability to raise assets in ESG-related investments,” the report said.

This should benefit asset managers with a large footprint in ESG-related investments, Moody’s said, noting that firms such as Eaton Vance, TIAA, and Blackrock Inc. are likely to benefit most.

Additionally, the rating agency said the order may strengthen the authority of regulators such as the U.S. Securities and Exchange Commission (SEC) to use data and disclosure to address climate-related financial stability risk.

“Better disclosures will make it easier for asset managers to perform ESG analysis and will broaden ESG awareness in the marketplace, which could increase market share for ESG-focused asset managers,” the report said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.