Montana Sen. Jon Tester, the only active farmer in the senate, identified the problem when he said, “I just came off the worst year ever on my farm. We need to do something on climate change. I think we spent $144 billion this year on disasters, and I don’t think that included crop insurance. So we need to do something on climate too.”
Agricultural producers are on the front lines of climate change and are experiencing the impacts now. Mega droughts, fire, floods, and other extreme weather events cost $145 billion in 2021. And that’s before crop insurance payments are accounted for.
More troubling, the total costs for the last five years – $764.9 billion – is more than a third of the combined costs for the last 42 years, according to data collected by the National Oceanic and Atmospheric Administration.
One of the tools we can utilize to prevent climate change from becoming significantly worse is to standardize the way large publicly traded companies measure and report their carbon emissions. Those companies can’t manage their climate related financial risks if they don’t estimate and report those emissions.
The Securities and Exchange Commission (SEC) is proposing a climate-related financial risk disclosure rule that will set a level playing field for all large publicly traded companies. It’s designed to help American businesses, including agricultural businesses, adapt their operations and supply chains to a changing climate. Several agribusiness and food companies have already pledged to reduce their emissions, including Archer Daniels Midland, Tyson Foods, General Mills and Molson Coors.
Some advocacy groups and members of Congress have erroneously stated that the SEC rule would require farmers and ranchers to collect large amounts of data and report it to the SEC. This is incorrect. The proposed SEC rule explicitly covers only large publicly traded companies. Those same opponents also charge that the SEC registered companies will require agricultural operations in their supply chain to collect the emissions data for each company to comply with the SEC rule. This is also incorrect.
Publicly traded companies can and will use industry averages and other available data expressly permitted by the SEC to estimate emissions, rather than data from each individual farmer or rancher. In reality, the proposal would have little to no direct impact on farms and ranches or any other small business that supplies inputs, products or services to these companies.
Investors, insurers and banks have demanded these disclosures to verify that publicly traded companies are effectively managing their climate risks. The costs of failing to address known climate risks will be passed on to producers and consumers.
Opposing the proposed rule will reward ineffective climate risk managers and will put effective managers at an unfair competitive disadvantage. Farmers and ranchers who invest to adapt their operations to climate change will be undermined if companies to which they sell and from which they buy inputs fail to show investors and insurers that they too are managing their climate related financial risks.
The proposed rule provides a standardized framework for reporting climate financial risk management so that no one company can prosper through misreporting or not reporting. The proposed rule is good for business, good for the economy, good for investors, and good for agriculture.
Ron de Yong ran a family farm in Montana and is a former Montana Department of Agriculture Director and taught agricultural policy and economics at Cal Poly State University.