Montana Senator Jon Tester, the only active farmer in the Senate, identified the problem when he said, “I just had the worst year of my life on my farm. We have to do something about climate change. I think we spent $144 billion this year on disasters and I don’t think that includes crop insurance. We must therefore also do something for the climate.
Agricultural producers are on the front lines of climate change and are experiencing its impacts now. Mega droughts, fires, floods and other extreme weather events cost $145 billion in 2021. And that’s before crop insurance payments are factored in. More troubling, the total costs for the past five years — $764.9 billion — represent more than a third of the combined costs for the past 42 years, according to data collected by the National Oceanic and Atmospheric Administration.
One of the tools we can use to prevent climate change from getting worse is to standardize how large, publicly traded companies measure and report their carbon emissions. These companies cannot manage their climate-related financial risks if they do not estimate and report these emissions. The Securities and Exchange Commission (SEC) is proposing a climate-related financial risk disclosure rule that will establish a level playing field for all major publicly traded companies. It is designed to help US businesses, including agricultural businesses, adapt their operations and supply chains to climate change. Several agro-industrial and food companies have already committed to reducing their emissions. The proposed rule will help these publicly traded companies deliver on their promises.
Some advocacy groups and members of Congress have erroneously said the SEC rule would require farmers and ranchers to collect large amounts of data and report it to the SEC. This is an error. The SEC’s proposed rule explicitly covers only large publicly traded companies. These same opponents also accuse SEC-registered companies of requiring farms in their supply chain to collect each company’s emissions data to comply with the SEC’s rule. This is also incorrect. Publicly traded companies can and will use industry averages and other available data expressly authorized by the SEC to estimate emissions, rather than data from each individual farmer or rancher. In reality, the proposal would have little or no direct impact on farms and ranches or any other small business that provides inputs, products or services to these businesses.
Investors, insurers and banks have demanded these disclosures to verify that listed companies are effectively managing their climate risks. The costs of failure to address known climate risks will be passed on to producers and consumers. Opposing the proposed rule will reward ineffective climate risk managers and put effective managers at an unfair competitive disadvantage. Farmers and pastoralists who invest to adapt their operations to climate change will be at risk if the companies to which they sell and buy inputs do not show investors and insurers that they too are managing their climate-related financial risks.
The proposed rule provides a standardized framework for reporting on climate-related financial risk management so that no business can thrive by 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 is the former director of the Montana Department of Agriculture.