Businesses And Investors Must Confront New Federal Climate Edicts

In Congressional testimony last month, Federal Reserve Chair Jerome Powell said that insurance companies and banks are already “pulling out of coastal areas, areas where there are a lot of fires.” He predicted that in “10 or 15 years there are going to be regions of the country where you can’t get a mortgage.”

This should not be a surprise. For decades, extreme weather events have been increasing in number and destructiveness, providing repeated reminders of the urgency of addressing climate change’s costs to our economy and financial system. Yet Powell’s comment stands out because it was virtually the only acknowledgement of climate-related financial risks from the federal government in the past month. A very different federal policy landscape has emerged–one that could lead businesses and investors to fall into the dangerous trap of climate denial.

The New Climate Edicts

Among its flurry of actions in its first several weeks, the second Trump administration issued a series of edicts that would whittle away the information sources and regulatory frameworks on which businesses and investors have long relied when managing climate risks. These new climate edicts, along with the wider set of disruptions to normal government functioning, including rollbacks in virtually every other area of climate policy, generate significant new risks that must now be managed.

Removal Of Reliable And Accessible Climate Information

In its first month, the second Trump administration indicated it will eliminate or dramatically reduce climate-related science programs. Among those targeted are the weather and climate programs at the National Oceanic and Atmospheric Administration. According to the American Meteorological Society, this decline in scientific capacity is “likely to cause irreparable harm and have far-reaching consequences for public safety, economic well-being and U.S. global leadership.”

Some climate data sets are created by vendors outside the U.S. government, but as Boston University law professor Madison Condon has shown, they are woefully incomplete and their “black box” methodologies make it impossible to evaluate their scientific rigor. Moreover, they are costly. At a time when climate change is placing enormous stresses on financial services and natural systems, it makes no sense that the small businesses, local governments, and others bearing the brunt of these impacts should be deprived of access to the data they need to navigate. Farmers have already launched litigation challenging the arbitrary elimination of weather data they rely on for their livelihoods. It is time for investors and other businesses to join them in advocating for climate data as a public good deserving of government support.

Weakening Of Financial Regulators

Another edict was that the work of financial regulators would be dramatically scaled back, including regulation and supervision of financial institutions’ handling of climate-related financial risks. Acting Comptroller of the Currency Rodney E. Hood succinctly captured the view of the new administration in his February statement explaining why he was withdrawing his agency from international efforts to address climate risks: “While severe weather events may be a broader societal concern, they do not fall within the OCC’s statutory mandate.” Rather than acknowledging Chair Powell’s point that these events are destabilizing the housing, insurance, and banking sectors, and that Congress has charged them with addressing threats to financial stability, Hood and other administration officials have dismissed any actions to address climate risks as part of a “woke” agenda.

Investors and businesses have long entrusted financial regulators to follow their Congressional mandates to remain independent and not obedient to White House directives. But in February, the administration began steps to consolidate two independent banking regulators and issued an executive order declaring that all independent regulators must obtain White House approval before finalizing regulatory actions. These actions badly weaken the regulatory frameworks on which investors and businesses have long depended to avoid or ameliorate financial crises.

“Federal banking regulators should be objective, nonpartisan, and protected from political influence, which is essential to promoting a safe and sound banking system, consumer confidence, and a strong national economy.”

Bankers, State Regulators, and Pensions Speak Up

Fortunately, community bankers as well as state banking regulators have pushed back against the administration’s proposals. States are also launching policy initiatives to fill some of the gaps. California has already enacted laws requiring corporate disclosures of GHG emissions and climate risks, and three other states are poised to follow suit. State insurance regulators are taking early steps to build a climate resilience framework.

Another encouraging development is the growing leadership on climate risk management by public pensions. State pensions such as New York State Common Retirement Fund and Massachusetts Pension Reserves Investment Management have increasingly wielded their shareholder voting power to pressure companies in their portfolios to address climate risks. In the United Kingdom, the People’s Pension, one of the country’s largest master trust pensions, recently began shifting assets away from U.S. asset manager State Street due to concerns about its stewardship of climate risk. A similar effort by pensions to improve asset manager accountability for climate risk is underway at the U.N. Asset Owner Alliance.

Other investors, as well as the business community, should support these state and international efforts while helping protect the federal regulatory framework. Ensuring that businesses and communities can thrive in an era of climate disruption will require focused effort at every level of government.

Weakening of the Energy Market Regulator

Although renewable energy has significant cost and reliability advantages over fossil fuel energy, efforts to integrate renewable energy into the electricity grid will be frustrated if the administration succeeds in ending regulator independence. Among the independent regulators being targeted is the Federal Energy Regulatory Commission, an agency that normally can be counted on to make decisions regarding whether wholesale electricity rates are “just and reasonable” and not “unduly discriminatory or preferential” based on technical rather than political considerations. White House interference could result in new, preferential treatment of gas-fired power.

The agency has already suggested that it may be susceptible to such pressure. Last month, over the objections of renewable energy developers and environmental groups, it found that emergency capacity needs in the nation’s largest electricity market justified a Reliability Resource Initiative that effectively enabled gas-fired power plants to jump to the front of the interconnection queue. This decision bore a disturbing resemblance to the “energy emergency” Executive Order issued by the White House, which would give preferential treatment to fossil fuel development by eliminating health and environmental safeguards applicable to that sector.

Businesses And Investors Favor Clean Tech Innovation

Fortunately, climate-aware businesses and investors know that clean technologies represent the future and are best positioned to meet power needs, including the rapidly growing demand spurred by data centers for AI. Even John Ketchum, CEO of NextEra, which has extensive holdings of gas-fired power plants, acknowledged in January that new gas-fired power will take years to come online and that costs are rising in light of both labor and supply chain challenges. In the near term, he said, “renewables are still the best option.” Similarly, last month, the U.S. Energy Information Agency forecasted that renewable energy and battery storage would represent 93 percent of capacity additions in 2025.

Market forces are very evidently continuing to propel clean technology. But to manage transition risks as well as systemic climate risks, businesses and investors will need to engage with federal and state policymakers, as well as regional grid operators, and help ensure against unfair, preferential treatment for gas-fired power. If despite renewable energy’s market advantages, grid operators choose to meet demand with new gas plants and delayed retirements of coal plants, as some have proposed, ratepayers will be saddled with the inordinate costs of a grid built with yesterday’s expensive, polluting technologies. Conversely, as energy analysts Iegor Riepen and colleagues explain, pursuing 24/7 carbon-free electricity will enable investors and businesses to seize a once-in-a-generation opportunity to become global leaders in designing and building the grid of the future .

Businesses and investors face significant challenges managing climate risk in light of the federal government’s dramatic new climate edicts. However, with active engagement in policy processes, they can position themselves for a leadership role in building a future powered by clean energy–and help reduce the risks that rising emissions pose to our economy and financial system.