Why business leaders should demand stronger climate adaptation policies from the federal government

The increasing impacts of climate change and extreme weather events such as hurricanes, floods, and wildfires present a real threat to American businesses. Data released late last year from the Census Bureau’s Annual Business Survey (ABS) shows that nationally, 9.8% of businesses experienced monetary loss because of extreme weather in 2022, the most recent year for which data is available. (ABS data refers to “employer businesses,” those with at least one paid employee.) 

Though comprising less than 10% of total U.S. businesses, the firms that experienced monetary loss due to extreme weather represented over $9 trillion in total revenue, or 32% of all revenue generated by reporting businesses that year. To put that figure into perspective, the spending on grants and tax credits for climate resilience, emissions reduction, and disaster preparedness in the Inflation Reduction Act, former President Joe Biden’s flagship climate policy and the largest investment in climate action in the nation’s history, was only $369 billion. 

As January’s Los Angeles wildfires tragically illustrated, disasters wreak economic havoc and destroy lives and livelihoods. The estimated economic cost from the wildfires is already in the billions, with over 16,000 buildings destroyed or damaged. Although it’s too early for precise estimates of losses to business activity, the three most-impacted neighborhoods—Malibu, Pacific Palisades, and Altadena—each contained over 1,000 businesses collectively employing an estimated 20,000 people. Recent reporting suggests that during the first week of the fires, the region saw a 65% decrease in business activity. 

A fire of this magnitude in the middle of winter was unimaginable even 10 years ago, yet events of this scale have become an annual occurrence. Helping local economies prepare for them by supporting communities and businesses to become more resilient should be top of the agenda for efforts to strengthen the American economy. To make this case, this piece explores where and how American businesses are at economic risk from extreme weather, and highlights how federal climate policies would help insulate local and national economies from disaster impacts. 

Extreme weather is costing American businesses billions of dollars

Unlike sole proprietorships, which comprise the majority of American businesses by number, employer businesses are community anchors that support community development by creating local employment opportunities and spurring economic activity. Collectively, these business drive national economic growth and help keep America internationally competitive. Yet the impacts of climate change are threatening business activity in ways that are poorly understood and seldom communicated. 

In 2022, the U.S. experienced 18 billion-dollar weather and climate disasters, costing an estimated $165 billion in physical damages to residential, commercial, and municipal buildings and public infrastructure. That’s likely an underestimate, as it doesn’t include the indirect costs of lost business revenue and work as well as disruption to supply chains. And 2022 wasn’t atypical for the U.S—in fact, it was only the third-most costly year for disaster impacts in recorded history. The damages will likely be dwarfed by future years, with average annual disaster costs trending upward since the 1980s when the National Oceanic and Atmospheric Administration (NOAA) began tracking impacts. 

While ABS data doesn’t provide details on the types of damages businesses sustained or the extent of revenue loss, studies of disaster impacts show that the consequences for businesses are often pronounced and chronic. Disruption to businesses comes both from direct loss and damages to the business itself, but also indirect impacts such as disruptions to local labor markets, destruction of the public infrastructure that businesses rely on, and displacement of a customer base. Following a disaster, the Federal Alliance for Safe Homes estimates that 40% of small businesses never reopen, and the Small Business Administration (SBA) estimates that up to 90% of all businesses fail within two years after a disaster.  

The impacts on businesses also affect the individuals that rely on these businesses for employment. ABS data show that businesses negatively affected by extreme weather in 2022 employed close to 20 million people nationally, or 28.3% of all individuals working in employer firms. Research shows that the impacts of disasters on employment stretch beyond the immediate disaster recovery period, potentially affecting communities for years. In fire-prone areas such as Southern California, for example, local economies can see declines in employment growth of around 15% in the three years follwing major wildfires. 

Extreme weather is also a threat to creating a more inclusive and racially diverse economy. While Black, Latino or Hispanic, Asian American, and other demographic groups don’t necessarily face a higher incidence of extreme weather than the average American, they’re more likely to face other economic barriers that make it more difficult to respond to and recover from disasters. Indeed, ABS data show that higher proportions of minority-owned businesses were affected by extreme weather compared to white-owned businesses: 12.2% of Black-owned business, 12.5% of Latino or Hispanic-owned businesses, 11.7% of Asian American-owned businesses, 15.5% of American Indian and Alaska Native-owned businesses, and 11.3% of Native Hawaiian and Other Pacific Islander-owned businesses, compared to 9.5% of white-owned businesses. 

Businesses in more disaster-prone and vulnerable metro areas face larger economic impacts 

While businesses in metro areas across the U.S. are at risk of extreme weather, in 2022, a higher proportion of businesses across the Southeastern seaboard, Northern California, and the Pacific Northwest experienced monetary loss. This reflects the pattern of climate disasters in 2022: Hurricanes Ian and Nicole caused severe damage to metro areas across Florida, North Carolina, and South Carolina, while Oregon, Washington, and Northern California experienced pronounced wildfires, including the Mill Fires, which destroyed over 100 homes and killed two people.  

Map 1 shows that of the top 10 metro areas in terms of the percentage of total businesses impacted, five are on the Florida coastline. This included the Cape Coral-Fort Myers metro area, Naples-Marco Island metro area, and Deltona-Daytona Beach-Ormond Beach metro area, where 56.4%, 41.3%, and 35.3% of businesses, respectively, were impacted. Metro areas in Louisiana were also severely impacted, including the New Orleans-Metairie metro area, where 47.4% of all businesses were impacted. New Orleans is still recovering since Hurricane Katrina, the 20th anniversary of which comes in August of this year. 

Substantial impacts also occurred in major metro areas across the U.S. This included New York, where over 14,784 businesses (or 8.4%) reported impacts; Los Angeles (10,502 businesses, 7%); Dallas (10,116 businesses, 17.3%), Miami (9,458 businesses, 13.1%), and Houston (8,962 businesses, 19.4%). These major cities don’t just drive regional economic development—they’re also national drivers of economic growth. These five cities alone are estimated to have contributed 19.9% to total U.S. GDP in 2022. 

Without support to adapt to the impacts of climate change, American businesses and communities will continue to feel the effects of extreme weather 

Federal and state programs to support businesses impacted by disasters do exist, but they tend to focus on disaster recovery rather than risk mitigation. Post-disaster, the SBA provides low-interest loans to cover business expenses and losses the Federal Emergency Management Agency (FEMA) does not insure or cover, and the the Department of Housing and Urban Development (HUD) helps communities recover more quickly by providing grants to aid rebuilding through Community Development Block Grant Disaster Recovery funds (CDBG-DR). 

From a policy perspective, one of the most immediate needs is more accessible, transparent, and actionable climate risk data. For cities across the U.S., public information on the threats of climate-related disasters is still out of date or unavailable, making it difficult for cities to zone for climate risks and for business owners to make informed investments in physical assets. New federal programs were moving in the right direction by providing funding for local governments to invest in disaster risk reduction, including the Building Resilient Infrastructure and Communities (BRIC) program and HUD’s Community Development Block Grant Mitigation Program (CDBG-MIT).  

However, recent federal policy has swung in the opposite direction. On Inauguration Day, the Trump administration made their position on climate change policy clear: In six executive orders beginning with Declaring a National Energy Emergency, the administration moved to end Biden-era programs on climate resilience, climate justice, disaster risk reduction, and renewable energy investment. Since then, the administration has gone further, scrubbing the term “climate change” from government websites, removing public data on climate justice and the health impacts of climate change, and, most recently, threatening to downsize or eliminate FEMA, the federal body tasked with responding to nationally declared disasters.  

It is unclear how much resistance from the public and business community these executive orders will see. Indeed, despite the impacts highlighted in this article, many Americans still do not think of climate change as a threat. According to Pew Research Center, only 54% of Americans view climate change as a “major threat to the country’s well-being.” Until we treat climate change as a serious threat to lives, jobs, and the national economy—therefore warranting bipartisan action—the economic impacts from disasters will keep getting worse.  

Unfortunately, the recent executive orders won’t change the occurrence of extreme weather. However, they will influence how communities prepare for and adapt to the impacts of climate change. Without a deliberate policy response around preparation and adaptation, these threats will continue to bear down on American lives, leaving communities and business owners less prepared.