DRAFT PROPOSED CHARGE FOR EFAB DISCUSSION - rev. 3/25/2022 Environment-Social-Governance (ESG): Building on EPA's record of using innovative finance to mitigate climate risk, reduce the cost of capital, and enhance public health and environmental commitments. EFAB Members J. Beecher, T. Chapman, and C. Meister Problem / Question Statement Environmental, economic, and financial regulators, and actors in the markets for debt and equity capacity, are focused on the adverse impacts of climate risk1 as part of rapidly expanding interest in ESG investment. While EPA's mandate is to protect human health and the environment, with Congressional support and authorization, it also has an extraordinarily successful record of funding and financing through the widely embraced and long-established State Revolving Fund (SRF) aimed at improving compliance with standards at a lower cost and thus enhancing water quality at the source and tap. Newly promulgated Rules to Enhance and Standardize Climate-Related Disclosures for Investors from the Securities and Exchange Commission (SEC 3/21/22 Proposal) focus on greenhouse gas emissions (GHG). SEC's consideration of climate risk in its financial regulatory framework presents an opportunity for EPA to harmonize its approach to climate risk in SRF program implementation. As part of its engagement, EPA may also make its GHG standards and data more readily available to the public. EFAB Mission Fit EPA's interest in this topic relates to its role as the nation's environmental health regulator but also as a significant source of capital financing to states and communities. EPA can further address climate risk by building on its successful track record with respect to implementing innovative financial solutions to environmental challenges. This proposed charge recognizes the critical intersection of environmental, financial, and economic regulation, the need for data-driven policymaking and decision-making, and the opportunity to harmonize developing frameworks to address climate risk. Innovative finance can address climate risk, reduce the cost of capital, and enhance the credibility of public health and environmental commitments. This is a natural topic for the EFAB as members have deep expertise across these diverse disciplines to maximize EFAB's contribution to this critical intersection. 1 SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors, March 21, 2022; The Green Bonding Hypothesis: How do Green Bonds Enhance the Credibility of Environmental Commitments? Shirley Lu, Harvard Business School, December 21, 2021; Financial Stability Oversight Council - Report on Climate-Related Financial Risk, 2021; Federal Advisory Committee (FACA) of the Commodity Futures Trading Commission, Climate- Related Market Risk Subcommittee off the Market Risk Advisory Committee, "Managing Climate Risk in the U.S. Financial System," September 9, 2020, https://www.cftc.gov/sites/default/files/2020-Q9/9-9- 20%20Report%20of%20the%20Subcommittee%20on%20Climate-Related%20Market%20Risk%20- %20Managing%20Climate%20Risk%20in%20the%20U.S.%20Financial%20Svstem%20for%20posting.pdf; Fink, L. (2020). Sustainability as BlackRock's New Standard for Investing. Letter to CEOs from the Global Executive Committee, January 14, New York, NY. Retrieved from https://www.blackrock.com/corporate/investor- relations/larry-fink-ceo-letter. ------- DRAFT PROPOSED CHARGE FOR EFAB DISCUSSION - rev. 3/25/2022 Type of EFAB Engagement The topic requires an EPA client, and we recommend the EPA Office of Policy. Given the breadth and timeliness of the ESG general topic, we envision a variety of potential EFAB products. ------- |