Policy Advocacy Fights the Risks of Climate Change

The latest National Climate Assessment presents the starkest picture yet of the growing costs and risks of climate change in the U.S. In 2022 alone, extreme weather events caused $178 billion to the United States. Billion-dollar natural disasters now happen every three weeks on average, compared to every four months in the 1980s. And if current trends continue, climate change could cost the global economy $5 trillion over a five-year period.

There’s no escaping that climate change poses serious and increasing risk to business. 66 percent of the World Economic Forum’s Global Risk Perception Survey (GRPS) respondents identified extreme weather as “most likely to present a material crisis on a global scale in 2024.” Rising temperatures and extreme weather events are direct threats to companies’ facilities, employees, and use of renewable energy grids. The only way to mitigate those risks is to cut emissions at speed and scale and strengthen the grid – and that requires public policy. Decarbonizing has begun, but public policy is crucial to ensuring the necessary reductions to stabilize the climate.

Companies understand that well-designed public policy is in their business interest: it creates regulatory certainty, establishes a level playing field and enables long-term investment and innovation. This is especially true when it comes to climate-related policy. By supporting laws and regulations that improve climate risk data, drive down emissions, and mitigate the growing risks from climate change, companies can ultimately protect their own business interests.

Climate-related financial regulation streamlines understanding of risk

Companies must understand how climate-related risks will manifest in their own business. A first step to understanding risk is identifying it. Many companies already conduct assessments and discover their own climate-related risks; however, study after study proves the current, voluntarily generated information is inadequate. More specific, comparable, and decision-useful climate risk disclosures from businesses will enable investors to better price risk, creating a more efficient and resilient market. Companies will benefit from investors making better informed decisions in addition to improved transparency.

To enable investors to better understand the physical and transition risks companies face, the Securities and Exchange Commission (SEC) has a proposed rule that would standardize the disclosure of such risks. Through this public information, companies can better benchmark climate risks against their peers and innovate solutions to reduce their risk exposure. It is critical that companies support disclosure and publicly endorse this rule from the SEC.

While this rule will provide a better understanding of climate risks, companies can look to other policies to fight those risks by lowering emissions.

Climate policy protects capital

Business assets and capital face serious risk from extreme weather and rising temperatures due to emissions, which reveal themselves in myriad ways. Extreme weather events pose a great risk to a company’s physical assets and areas in which they operate. By 2050, over 90 percent of the world’s largest companies will have at least one physical asset highly exposed to the damages of climate change. And when temperatures rise, workers are at a greater risk of heat-related illness.

To help protect physical and human capital from the threats of climate change, companies can support efforts to reduce emissions from some of the heaviest polluting entities – power plants. The Environmental Protection Agency has proposed rules to regulate new and existing power plants to avoid 775 million metric tons of pollution in CO2 emissions that can deliver up to $105 billion in climate and public health benefits. When a business supports this rule, they choose to help mitigate the risk of rising temperatures to their physical capital and workforces.

Climate and energy policy protects and strengthens the grid

Most companies have unveiled important goals in transitioning their operations to net-zero emissions, which largely include shifting towards the usage of renewable energy. When companies decarbonize and harness more renewable energy, it ensures that less extreme weather events will happen that could negatively impact the grid. To bolster the energy grid’s reliability from extreme weather events even further, companies can turn to policy.

An example of a policy that would strengthen the grid is the Federal Energy Regulatory Commission’s (FERC) proposed rule regarding transmission planning and cost allocation. Transmission expansion is needed to fully realize the potential of renewable energy. The proposed rule will require that grid operators and utilities plan the transmission system with the needs of our decarbonizing and electrifying system, as well as the risks of climate change, in mind and drive transmission expansion. Therefore, while companies decarbonize, they can support the planning for a more reliable energy grid from risks like extreme weather.

Support Leads to Mitigation

Climate change does not wait for anyone, and the negative effects are being felt now. Business advocacy is a critical piece of the broader net-zero transition puzzle.

By supporting these crucial policies and rulemaking, businesses enable ways to understand climate-related risks to their assets and encourage ways to reach net-zero goals. By engaging constructively in the policymaking process, companies can ensure that laws and regulations achieve emission reduction goals as efficiently and cost-effectively as possible. These same principles will endure as the government continues to develop the evolving policies needed to fight climate change.

To learn more, explore the AAA Framework for Climate Leadership, our Top Climate Policy Priorities and how policy is a pathway to net-zero.