Unlock golden risk management opportunities from new climate risk rules

When I think ahead to the major climate storylines of 2025, companies preparing for the first climate disclosures from within the United States sits near the top of that list.

Although, following November's election, it's unlikely to involve the SEC’s climate reporting rule, which proposes at the federal level that public companies disclose the risks of climate change to their businesses. The rule has been long-delayed by legal challenges, leading many U.S. companies to adopt a wait-and-see approach to assessing climate risk – believing that delaying their efforts will protect their time and operations.

In the meantime, California has officially signed its own climate disclosure bill into law and put in place a 2026 reporting date. The bill also asks large companies to understand, report and mitigate the impact of climate change, meaning the wait to assess climate risk is over in The Golden State.

This is a big deal for organizations across the U.S. With California’s economy ranking fifth internationally – behind the U.S., China, Germany and Japan – the bill applies not only to California-based firms, but also any that do business there. Experts have estimated that it will affect the majority of the Fortune 1000.

If your business is among this vast number, it’s time to integrate climate risk management into your strategy and report on your value chain’s greenhouse gas emissions. This means being able to model the potential financial impacts of climate risk on your business.

But, there’s more than compliance at stake: You can’t risk missing the chance to mitigate the impacts of climate change on your business.

In 2023, the U.S. alone experienced more than 25 separate billion-dollar-plus weather and climate disasters, the most recorded in a calendar year. Such extreme weather incidents will only increase and cause greater damage to property, infrastructure or inventories, resulting in business interruption, higher operating costs and considerable risks to supply chains.

In other words, modeling the financial impacts of extreme weather is critical to helping your company protect its operations and put its money to work.

However, climate risks are markedly different from any risk your firm is likely to have measured or managed before. That’s why there’s not a moment to waste when preparing for new modeling requirements.

Understand the new regulations

California’s climate disclosure bill asks large U.S. companies to adhere to new standards for disclosing climate-related risks, reducing greenhouse gas emissions and ensuring sustainability. Failure to comply could result in hefty fines, reputational damage and missed business opportunities.

Officially and collectively known as the Climate Accountability Package, the climate disclosure bill actually comprises two Senate bills: the Climate Corporate Data Accountability Act (SB 253) and the Climate‐Related Financial Risk Act (SB 261).

SB 253 requires U.S. companies with revenue greater than $1 billion that do business in California to report annually on their direct and indirect carbon emissions.

Meanwhile, SB 261 applies to U.S. companies that do business in California and with revenues greater than $500 million.

In addition to asking firms to disclose their climate-related financial risk, SB 261 seeks insight into the steps they’re taking to reduce and adapt to those risks.

End the waiting game

The SEC’s nationwide climate disclosure proposal is caught up in the courts, and its future has been thrown even further into doubt following the victory of Donald Trump in the outcome of the 2024 presidential election, which could influence the SEC’s agenda. Yet, as California’s climate disclosure bill passes into law with a potential impact on so many U.S. corporations, the court’s ruling is now moot. California has fired the starting gun, and companies must act now.

Any hesitation to date or failure to prepare in advance may already result in rushed adjustments and higher compliance costs. However, companies that take proactive steps to understand and manage their climate impacts will be in a better position than those that delay further.

More importantly, from a risk management and strategy perspective, procrastination means missing out on opportunities to mitigate the impacts of extreme weather on your supply chain. This fallout of climate change is an ever-present risk for companies today and will only get worse as greenhouse gases continue to pollute the atmosphere.

Be proactive about climate risk

By taking fast, proactive steps to not only report, but also manage, climate risks, businesses in the U.S. and beyond can ensure they remain compliant, sustainable and competitive.

Regulatory change is coming, and you need to prepare not only to comply, but also to generate mission-critical data for risk management and business decision making.

With the right tools, you can proactively address and manage climate risks in five steps.

1. Identify and quantify your climate risks

You need advanced analytics and algorithms to help assess the probability and financial impact of climate-related risks for your company, especially if you want to analyze risk at an asset level. By analyzing different climate scenarios, you can also understand a range of potential future impacts on your business.

Additionally, dynamic modeling capabilities will help understand how risk hotspots and weather patterns may change in short, medium and long-time horizons.

2. Assess the potential financial impacts

Economic modeling tools are key to projecting the financial repercussions of climate risks on your assets, cash flow and operations. For example, as climate risks continue to increase, insurance underwriters are under pressure to charge policyholders higher premiums.

For the effective allocation of resources, you must also determine which assets carry the highest risk and are worth most of your time and investment.

3. Manage and reduce the risks you face

Now that you’ve identified and valued your climate risks, you can develop custom, tailored strategies for mitigating them.

You can also carry out cost-benefit analysis to compare the costs of implementing mitigation and adaptation measures against the potential benefits of long-term risk avoidance, regulatory compliance and climate-related opportunities.

4. Report the risks with accuracy and clarity

To achieve consistent compliance, you must produce detailed reports that meet regulatory requirements in multiple jurisdictions.

But it’s not all about compliance: You must also present clear, actionable insights to stakeholders, boosting transparency and trust.

5. Make climate risk management meaningful

Regulation may be the current driver behind collecting climate risk data, but the true challenge for any company is to keep the business up and running.

With all that time and energy spent on disclosures, check-box compliance wastes opportunities to use the insights you generate for strategic business decisions and processes.

You must quantify the damage, disruption and insurance premium changes caused by trends in extreme weather. And with your quantitative output, you can comply with regulation and empower stakeholders from across the business – finance, risk, insurance, sustainability, real estate and supply chain – to take meaningful actions to manage and mitigate climate risk.

Confront the challenge – Seize the opportunity

Corporations doing business in California are now under pressure to prepare for a future of mandatory climate disclosure. But California’s regulatory shift is not just a challenge; it’s an opportunity for innovation and leadership in the corporate sector.

Implementing climate risk management strategies now will position businesses as responsible pioneers in climate stewardship. By preparing for compliance today, you can protect your business tomorrow.