Businesses And Investors Must Confront New Federal Climate Edicts

The Growing Threat of Climate Change to Financial Stability

Jerome Powell, Chair of the Federal Reserve, recently highlighted a pressing concern in his congressional testimony: insurance companies and banks are retreating from high-risk areas prone to extreme weather events, such as coastal regions and fire-prone zones. He ominously predicted that within 10 to 15 years, certain parts of the country may become permanently ineligible for mortgages. This warning underscores the escalating threats climate change poses to our financial system and economy, yet it stands out as one of the rare acknowledgments of climate-related financial risks from the federal government in recent times.

The New Climate Edicts: A Shift in Federal Policy

The second Trump administration has introduced a series of policies that undermine the existing frameworks and information sources businesses and investors rely on to manage climate risks. These edicts, alongside broader disruptions to government functions, are rolling back climate policies across the board. This shift creates significant new risks that must be navigated by businesses and investors, potentially luring them into a dangerous complacency regarding climate change.

The Erosion of Reliable Climate Information

One of the most concerning actions taken by the new administration is the elimination or significant reduction of climate-related science programs, including those at the National Oceanic and Atmospheric Administration (NOAA). Experts warn that this depletion of scientific capacity will have far-reaching consequences for public safety, economic stability, and U.S. global leadership. While some climate data is provided by private vendors, these sources are often incomplete, lack transparency, and are costly. Small businesses and local governments, which are disproportionately affected by climate change, are particularly vulnerable as they may lose access to crucial data needed for decision-making.

Weakening of Financial Regulators and the Risks Ahead

The new administration has also curtailed the role of financial regulators in addressing climate-related risks. The Comptroller of the Currency has dismissed these risks as beyond the agency’s mandate, ignoring the destabilizing impact of extreme weather events on key financial sectors. This stance contradicts Chair Powell’s warnings and undermines the independence of financial regulators, which investors and businesses have long trusted to act independently. Further, the consolidation of banking regulators and the requirement for White House approval on regulatory actions weaken the frameworks designed to prevent financial crises.

Pushback from the Private Sector and State Governments

Despite these challenges, there are encouraging signs of leadership from the private sector and state governments. Community bankers and state regulators are resisting federal proposals that undermine climate risk management. California has enacted laws requiring companies to disclose greenhouse gas emissions and climate risks, with other states set to follow. Public pensions are also taking proactive steps, using their influence to push companies to address climate risks. Internationally, similar efforts are gaining momentum, with investors holding asset managers accountable for climate stewardship.

The Battle Over Energy Market Regulation

The Federal Energy Regulatory Commission (FERC), traditionally an independent body, is now facing potential political interference that could favor fossil fuels over renewable energy. Such shifts could undermine efforts to integrate renewable energy into the grid, despite its cost and reliability advantages. Businesses and investors are recognizing the importance of clean technology, with renewable energy and battery storage projected to dominate future capacity additions. However, without fair regulatory frameworks, ratepayers may be burdened with the costs of outdated, polluting technologies.

In conclusion, while the federal government’s recent edicts pose significant challenges for managing climate risks, proactive engagement from businesses, investors, and state governments offers hope. By advocating for robust climate policies and supporting clean energy innovation, these stakeholders can mitigate risks and seize opportunities in the transition to a sustainable future.