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.


-------