The Urgency of the Climate Law

Sofia Santos, PhD | CEO of Systemic

The Climate Law is fundamental to the health of a market economy. Any initiative that seeks to eliminate the concept of a climate emergency or to open the possibility of weakening climate targets is not defending the market economy, but rather promoting an ideological belief — recalling positions associated with Trump.

In fact, Portugal is currently going through a particularly important phase for society. In this context, it is essential to identify the growing spread of simplistic populism across several political parties, as this trend may have a negative impact on companies and on the financial sector.

When a party that presents itself as liberal and as a defender of the market economy states that it intends to amend the Climate Law and eliminate the concept of climate emergency, it is not defending the market economy. Instead, it is attempting to be populist while ignoring what is truly important for the national economy: the clear recognition that climate risks are financial and economic risks for the Portuguese economy, and that companies will therefore require public support to overcome them.

This support may take different forms, but there is no doubt that regulation will be necessary to protect people and businesses — regulation that must be intelligently and creatively designed. Without it, companies are left to deal alone with a clear market failure. And, as basic economic theory teaches us, market failures require public intervention to reduce the negative impact of externalities on corporate balance sheets.

Eliminating the recognition of a climate emergency in the Portuguese economy effectively means leaving SMEs and large companies to face alone the climate risks and damages that are already evident.

According to the most recent climate risk report from ASF, the insurance sector supervisor recognises “the importance of insurance undertakings and national pension fund management companies being proactive in identifying the climate risks relevant to their business models, and of gradually developing their own perspective on the key variables influencing these risks, in light of their specific profiles and value chains. It is essential to note that climate transition risks are likely to intensify abruptly, particularly as we approach key intermediate milestones, agreed by most countries for 2030, in a context of highly challenging — if not weak — prospects for alignment with a pathway limiting global warming to +1.5°C above pre-industrial levels. This will further increase pressure for the climate transition of society, the economy and the financial sector.”

Similarly, the most recent report by the Bank of Portugal on the exposure of the banking sector to climate risks states that “climate change constitutes a source of risk to the economy and to the financial system, thereby influencing the execution of the mandates of central banks and financial supervisory authorities. The evolution of global temperature is a key factor driving climate risks, which affect the real economy and the financial system, and therefore influence the mission of central banks and financial supervisors.”

It is also important to recall that, over the past 20 years, Portuguese insurers have paid around one billion euros in compensation related to 27 natural catastrophes. However, this figure represents only the surface of the problem. According to a study by EIOPA analysing losses between 1980 and 2020, 96% of storm-related damages in Portugal were uninsured. This means that households, businesses and the State itself bear the vast majority of the costs.

The insurance market confirms that this trend is worsening. Storm Martinho, in March 2025, resulted in around 14,000 claims and €28 million in insured damages. The Kristin depression, which hit the country in January 2026, led insurers to mobilise teams across several regions, in a scenario involving fatalities, significant material damage and infrastructure destruction. Both APS and ASF confirmed that insurers are required to pay compensation even in situations of calamity, provided that coverage exists.

These figures confirm the obvious: climate risk is already economic, material and part of daily life. Ignoring it does not make Portugal more competitive — it makes it more fragile. Insurers, international funds and global reinsurers have no doubt that the costs associated with extreme weather events are increasing and represent additional pressure on premiums, claims and the sustainability of protection systems. Global losses from natural catastrophes remain alarming, and international financial actors warn that until greenhouse gas emissions reach a tipping point, the frequency and intensity of these events will continue to increase, with direct impacts on insurance and systemic risk.

For this reason, we should not dismantle something that is pioneering.

Portugal currently has a progressive Framework Climate Law that is far more than an environmental instrument. It is an economic and institutional pillar that provides predictability, stability and strategic direction at a time when climate has ceased to be a distant variable and has become a daily risk factor.The recent succession of extreme storms — such as the Kristin depression and the associated flooding — confirms what science has warned for decades: intense weather events are becoming more frequent and more destructive. This week and the next will provide further examples, with new depressions requiring “maximum caution” from authorities due to the risk of multiple flood peaks.

In a modern economy, stability depends on our ability to anticipate risks. The Climate Law exists precisely for this purpose: to reduce vulnerabilities, guide investment, protect infrastructure, modernise sectors and align Portugal with what markets, investors and science demand. Repealing or weakening this law does not eliminate costs — it multiplies them.

The Climate Law is not ideology. It is economic rationality. It is alignment with global markets, with science and with investment requirements. Repealing or diluting this law would run counter to international economic dynamics, increase the financial exposure of households, businesses and the State, and further weaken the Portuguese economy.

Portugal cannot choose between the environment and the economy. It must choose both, because they are intrinsically linked. And that choice begins by protecting the law that enables the country to work with reality — rather than against it.

Published on PTGreen