Democratic presidential candidate Elizabeth Warren has released another plan. This time it's a strategy for accelerating the U.S. shift to clean energy sources.
The core of the plan is based on using public markets themselves to boost clean energy adoption, by obliging companies to make their own climate-related risks more clear. Altered weather patterns threaten to cause substantial, even catastrophic damages to individual companies. From floods that cripple supply lines or destroy factories, or droughts that shrink the water available to individual manufacturing plants, to increased cooling costs in the data centers that power the internet, 200 of the world's largest companies have alone identified $1 trillion in such risks to their bottom lines and shareholders.
But on average, European companies are well ahead of their U.S. counterparts in identifying such risks. That puts shareholders of U.S. companies at a nontrivial disadvantage: Companies with significant climate change risks may be intentionally downplaying those risks to investors, or may genuinely be ignoring those risks themselves. Warren's straightforward change calls for the Securities and Exchange Commission to issue rules obliging public companies to analyze and disclose the risks the company faces if climate change "continues at its current pace"—and the comparative effects if greenhouse gas emissions are successfully held to the targets of the Paris Agreement.
Such rules would not just make the costs of the "do-nothing" option far more clear, but turn the markets themselves into a proper enforcement mechanism. Companies with severe climate risks will see a commensurate hit to their public value, and the markets themselves will demand mitigation of those risks. Or, at the least, investors in U.S.-based companies will be given a more robust appraisal of them.
That does not necessarily mean that investors will immediately insist that each company take steps to reduce their own carbon footprint in accordance with the Paris Agreement. The markets will likely continue to reward short-term manipulations over longer-term stability. But the costs of each option will be more clearly spelled out, and the truly staggering costs to be paid if the United States and other countries do nothing will be written out as a line item that not even the top Wall Street firms can ignore.
