Fundamentally, climate change is a serious economic threat. As climate-related damages increase (e.g., from increasingly frequent extreme weather events), it is essential for corporations and governments to implement measures to mitigate climate change and its risks to the economic system. However, many companies have not even begun to recognize and deal with the economic and financial risks they face from a carbon-constrained, climate-disrupted future. While some stakeholders (e.g., investors, certain regulators) have started to grow more cognizant of these risks, their actions thus far have been inadequate to improve the climate resilience of a post COVID-19 economy in the U.S. Absent new climate change regulations or significant investor pressure, it is difficult to incentivize companies to undertake the timely and necessary investments needed to improve their climate resilience for the future.

In this context, the massive amounts of federal recovery aid disbursed to corporations due to the COVID-19 pandemic present an occasion to leverage federal funds already in use to advance our progress in addressing climate risks. Many other developed economies have already taken similar measures by incorporating climate provisions in their COVID-19 recovery packages. We argue that the U.S. should follow suit by using pandemic recovery funds to incentivize corporations to better confront their own climate risk exposure by attaching climate conditionality to relief for the private sector. In particular, we propose that:

  1. Corporations that receive COVID-19 relief should report on their exposure to climate risks and on their climate impact.
  2. Companies should be incentivized to implement an internal carbon pricing scheme through favorable terms for COVID-19 relief loans.
  3. Companies from certain carbon-intensive sectors should face additional climate-related restrictions.

Read the full report about using corporate stimulus to fight climate change by Sanjay Patnaik, Siddhi Doshi, and Kelly Kennedy at Brookings.