RESILIENCE FINANCE WILL GO MAINSTREAM.

From the Climate Bonds Initiative to the Global Adaptation and Resilience Investment WorkGroup, finance sector experts are working to create mechanisms in the financial markets that make it more likely that assets under management will include more climate change resilience projects. That’s important, since the gap in resilience finance, which the Climate Policy Initiative doggedly tracks annually, grows wider. Creating principles for resilience-related green bonds is a high priority in the growing climate bond field.

RESILIENCE FUNDING WILL INCREASE.

Both the Department of Housing and Urban Development and the Federal Emergency Management Agency received increased mitigation-related appropriations, in part through the “Disaster Recovery Reform Act.” Going forward, FEMA can use 6 percent of its Disaster Relief Fund on pre-disaster mitigation and HUD allocated $28 billion to support long-term disaster recovery in nine states, Puerto Rico and the U.S. Virgin Islands with $16 billion earmarked for risk mitigation. Rules and guidelines for accessing these competitive grants are on the agencies’ 2019 to-do list.

CLIMATE CHANGE-DRIVEN MIGRATION WILL BE BETTER ORGANIZED.

Even as Louisiana grapples with the ongoing migration of families from their southern parishes because of climate-related issues (e.g., in Plaquemine Parish, 67 percent of the population left between 2000 and 2015), it and other states seek ways to create capacity and opportunity in receiving communities. We even have a term for this change:“Climigration.” It was coined by Robin Bronen, executive director of theAlaska Institute for Justice,to replace the commonly used misnomer “climate refugee.”

RESILIENCE NEWS WILL BECOME MORE UBIQUITOUS.

The resilience-related news cycle will grow, driven by growing tragedies that define the resilience gap. Last year’s National Climate Assessment spotlighted the costs we already are experiencing:

• Flooding along the Mississippi and Missouri rivers in 2011, triggered by heavy rainfall, caused an estimated $5.7 billion in costs.
• Drought in 2012 caused widespread agricultural losses to crops and livestock, and low water levels along the Mississippi River affected transportation of goods. resulting in an estimated $33 billion in losses.
• Annual federal firefighting costs have ranged from $809 million to $2.1 billion per year between 2000 and 2016.

Experts in many sectors now assert how climate change risk is impacting their goals, resulting, for instance, in a 10-fold increase in my resilience-related Google feed – the source of many of my tweets the past year.

RURAL AMERICA WILL CONTINUE TO BEAR THE BRUNT OF CATASTROPHIC LOSS.

Many Americans still live, work and play in smaller towns and cities where most climate change-related tragedy strikes – from Paradise, California, to Mexico Beach, Florida. Resources focused on smaller communities, such as Flood Forum USA and Online Help and Advice for Natural Disasters, are going to be even more in demand.

Are you detecting other resilience-related trends? Please let me know. Contact me on Twitter.

This oped originally appeared in Triple Pundit https://www.triplepundit.com/story/2019/five-resilience-trends-watch-2019/82001

Image credit: Bureau of Land Management/Flickr

The post Five Resilience Trends to Watch in 2019 appeared first on Innovation Network for Communities.

At last week’s Global Climate Action Summit, I sat down with Keith Kenny, McDonald’s Global Vice President of Sustainability to learn about the company’s resilience story. He asserted that climate resilience is both an environmental and economic imperative for the company.

“Farmer livelihoods and related thriving rural communities are important to us because our restaurants are in those communities,” he explained. “That gets forgotten when we speak about sustainable agriculture.  Farmers need to be able to reinvest in their business. Just as we invest in them.”

That belief proved to be McDonald’s inspiration for its Flagship Farmers Program, which connects farmers interested in continuous improvement and sustainable practices. Its platform notes that climate change is affecting agriculture, causing droughts, floods, more storms and heat waves. The program encourages farmers “to adapt and develop our farming systems to be more resilient to these changing environmental conditions.”

Publicly recognizing these hazards caused by changes in climate – and predicted to grow over time – offers a good start on the path to making climate resilience a key feature of the business.

Keith pointed out that McDonald’s invests in supply chain projects with a 20-30 year payback, which makes them both climate change sensitive and focused on resilience to ensure year-over-year payback. Unlike other retailers with tens of thousands of items on their shelves, “15-to-20 items represent 70 percent of what we sell,” he said. “We have long-term relationships with our suppliers. Most of them have grown their business as we have grown ours.”

This is key, for instance, for beef consistency – patty to patty – throughout the world and also for long oblong potato varietals conducive to harvest times, storage and its fries.

This is a significant improvement from McDonald’s supply chain response of about five years ago. Then, under different leadership, its response to a question of what McDonald’s was doing to adapt its supply chain to climate change was to exclaim, “We’ll just tell Canada to get ready to grow canola if it gets to hot and dry to grow it in the lower 48.”

Its fresh approach may bring McDonald’s more into the climate-resilient supply chain vanguard with such companies as Mars Inc. and Coca Cola that have collaborated with the nonprofit Business for Social Responsibility to launch a Climate-Resilient Value Chains Leaders Platform announced at last week’s Summit.

Though McDonald’s has yet to officially join that initiative, it is among a group of food companies including Keurig Green Mountain, Heinz and Chipotle making initial strides on climate resilience. And, like other big companies, climate action to reduce greenhouse gasses is becoming more of a priority. This year, McDonald’s announced it was partnering with franchisees and suppliers to reduce greenhouse gas emissions related to its restaurants and offices by 36 percent by 2030 from a 2015 base year in a new strategy to address climate change. It also committed to a 31 percent decrease in emissions intensity per metric ton of food and packaging across its supply chain by 2030 from 2015 levels, and the combined target has been approved by the Science Based Targets initiative.

Keith said innovation is key to McDonald’s resilience and sees soil health as a “huge opportunity” that the company is exploring with such partners as the World Wildlife Fund and the University of Arizona. In addition, he enumerated the many collateral benefits of pursuing adaptive multi-paddock grazing – moving cow herds from paddock to paddock – that allows soil to regenerate by giving native plants a chance to establish deeper roots. This enhances carbon sequestration and water retention and filtration while increasing productivity with more animals grazed on the same land.

Keith also offered another example of how its thinking about climate change and resilience has changed, and it reflects that McDonald’s is a surf-and-turf restaurant. Cod fished from the North Atlantic were a key element of McDonald’s filet-o-fish sandwich until environmental organization Greenpeace brought McDonald’s and others to task for fishing in a warming ocean where melting ice flows are exposing previously frozen areas. Keith was invited by Greenpeace to journey on its Arctic Sunrise ship to see firsthand “what the fish are up to” in a climate-changed world.

In May 2016, McDonald’s and more than a dozen other seafood industry giants joined forces to protect a large area of the Arctic from increased fishing. The voluntary agreement commits the companies from expanding cod fishing into a previously ice-covered portion of the Northern Barents Sea in the Arctic.

This article originally appeared on Triple Pundit

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Hence the rise of adaptation finance, which World Resources Institute has said is necessary as “poor rural areas are frequently the most in need of financial support to strengthen their resilience to climate change, yet they often have the fewest financial resources available.”

To that end, a key question was asked at “Resilience Day” during this week’s Global Climate Action Summit: how do we scale finance for adaptation?”

The question and responses are critically important because, as noted by Barbara Buchner, executive director of the Climate Policy Initiative, finance for climate adaptation in 2017 amounted to just $22 billion vs. $382 billion for climate mitigation.

Here are five answers based on input from several players in the adaptation investment field. These leaders include Sanjay Wagle, managing director of the private socially driven equity investment firm The Lightsmith Group; Dr. Buchner and Kirsten Dunlop, CEO of the European Union’s Climate-KIC; Kathy Baughman-McLeod, senior vice president of Global Environmental & Social Risk, Bank of America; and Mari Yoshitaka, chief consultant for the Clean Energy Finance Division of Mitsubishi UFJ Morgan Stanley Securities. For adaptation finance to work and ensure resilience, the following must occur:

1. Get the adaptation-related policies right. Regulatory uncertainties hinder investors. Especially since finance flow is mostly domestic, investors care about predictability. Nonprofits, bilateral agencies and academic institutions can assist sovereigns with regulatory improvements.
2. Borrow innovative finance solutions from other sectors, including the vanilla approach of ensuring all government investments are adaptive to climate risk, as well as insurance-linked securities, green bonds and other scalable and replicable means.The International Finance Corporation and other multilateral investment banks can further this work, increasing their emphasis on adaptation from a historic emphasis on mitigation.
3. Move toward a globally accepted standard for resilience finance including language on the use of proceeds so the market grows with each investment. Commercial and investment banks should be part of this standard-setting, with engagement from the Financial Stability Board and others.
4. Create facilities, starting in markets easy for investors’ participation, where a blend of philanthropy, impact capital, development finance and regular market capital invests in products and where projects can be wrapped and warehoused for their marketability. Focus especially on multiplying the scant grant resources in ways that inspire more adaptation finance, not just one improved project. Philanthropies, development banks and green investment banks are part of this solution.
5. Make the existing knowledge about profitable adaptation solutions much more widely known, since investors remain unaware of opportunities in this space. All adaptation thought leaders need to make this a priority, turning risks into investment opportunities.

As the Summit comes and goes underway, it is important that we strive to ensure these five directives can help scale up climate adaptation.

This article originally appeared in Triple Pundit.

The post Five Adaptation Finance Tips That Can Help Build Resilience Worldwide appeared first on Innovation Network for Communities.

Real estate risk from the physical impacts of climate change.”

That’s how Neil Pegram, Director of Americas with GRESB, a global investor-driven benchmark organization that tracks real estate portfolios’ environmental, social and governance performance, welcomed attendees at GRESB’s affiliate event at last week’s Global Climate Action Summit.

Pegram was noting how slow the real estate industry has been in turning its attention to the impact of climate change on real assets, even though climate resistance has become an investment imperative in a sector where such investments often are held for a decade or longer.

It seemed apropos that the GRESB event was taking place as the East Coast prepared for Hurricane Florence’s anticipated wrath and as the real estate industry absorbs the news that 2017’s natural disasters caused an estimated $220 billion in property and infrastructure damage – two-thirds of the $330 billion in global economic losses, figures Munich RE.

In March, GRESB released a new resilience module, an optional supplement to the GRESB Real Estate and Infrastructure Assessments. It is a significant improvement over the paltry resilience checkbox that GRESB included in prior benchmark frameworks.

GRESB leaders acknowledged it was the Financial Stability Board’s Task Force for Climate-related Financial Disclosure (TCFD) recommendation that information related to governance, risk management, strategy, and performance metrics be disclosed that caused them to fortify the resilience benchmark.

Several real estate investors in attendance described their portfolio’s resilience – and they reinforced the view that an industry awakening has begun. Nina James, General Manager, Corporate Sustainability, for Investa said that resilience generally is considered a “mega trend” and investors place it in the category of a “taking a long-term bet.” Like technology, climate change is viewed as a disruption that influences thinking and begs questions about what effective asset stewardship should look like.

Martin Kholmatov, Senior Responsible Investment Specialist at AIMCo, acknowledged that a new set of stresses and shocks exists.  “They make us wonder, how is the business model going to evolve.” He said, adding that he and others think that “a proxy for good management is looking at ESG [Environment, Social and Governance] issues.”

Romilly Madew, representing Australia’s Green Building Council, noted that a growing number of investors ask about resilience. “We tell our members to deal with resilience now and be prepared because investors are going to ask,” she explained.

And Michelle Bachir of Deloitte pointed out that the firm’s advisory clients “are wondering what to put out there to make it decision useful for investors.  Our clients want to portray their leadership in the space. This is an exciting time.”

But GRESB’s data don’t completely confirm this positive tone. Only 13 percent of Real Estate Assessment GRESB responders – just over 100 firms – submitted information for the resilience module. The vast majority reported on only 20 percent of the resilience module, a poor showing indeed.

Adam Kirkman, Head of ESG at AMP Capital struck a conservative note by asking, “Where is the right time to pull the lever to future proof an asset based on risks down the track….What is the financial engineering resilience required?” He also pointed out that benchmarking is for the current real estate portfolio, while resilience decision-making needs to be built into new assets, too.

Ari Frankel, Sustainability & High-Performance Buildings, Alexandria Real Estate Equities, Inc. put a fine point on the challenge beyond GRESB.  Unlike other reporting frameworks such as GRI that requires quantification of progress and check boxes relating pastinformation, TCFD is “transformative, because you are asking investors to look at forward-looking, qualitative and scenario-based uncertainty.”

Let’s hope these real estate mavens attended the actual Global Climate Action Summit. They would have heard from leaders as varied as James Lee Witt, former FEMA director and current advisor to Fortune 500 companies; Lionel Johnson Jr., mayor of St. Gabriel, La.; former U.S. Vice President Al Gore; Henk Ovink, Special Envoy for International Water Affairs for the Kingdom of the Netherlands; and Johan Rockström, executive director of the Stockholm Resilience Centre. They warned that the real estate sector’s ongoing drive for coastal development was on a collision course with climate risk, imperiling real estate assets and humans.

The UNFCCC’s 3rd Biennial Assessment and Overview of Climate Finance Flows released in April — a month after GRESB’s resilience module – calculates that real estate assets at risk in 2070 will be $35 trillion (total value).  Now that’s mind-blowing.

This article originally appeared on Triple Pundit

Image credit: NOAA Environmental Visualization Laboratory

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In the last few months, I’ve offered counsel to cities as diverse as Minot, N.D. (at the invitation of FEMA), Miami Beach (at the invitation of the Urban Land Institute) and Buras, La. (at the request of the Rockefeller Foundation 100 Resilient Cities). Speaking with these local and innovative government leaders has helped me refine my own understanding of the current state of resilience finance in the U.S.

Here are four market inspirations I have gleaned that could drive more resilience finance:

1. In its report “Climate Adaptation and Liability,” the Conservation Law Foundation unveils numerous cases describing a new era in the “duty to care” for designers, real estate professionals and municipal government officials as events that future climate scenarios envision replace force majeur events.
2. Although the federal National Flood Insurance Program distorts price signals in the risk transfer elements of the market – and I strongly encourage you to engage on its reauthorization, perhaps starting by reviewing this excellent piece – in such highly vulnerable markets as Houston and Miami, an insurance price signal is emerging as flood insurance premiums rise faster there than elsewhere.
3. Credit rating. Moody’s and Standard & Poor’s have made announcements that the physical risks from climate change will be factored into municipal credit ratings, and S&P has been clearer about this impact, for instance as shown in the article How Our U.S. Local Government Criteria Weather Climate Risk. Municipalities don’t want their debt to be more expensive and, therefore, less attractive to investors, so this is a big deal.
4. Big data. With the emergence of big data modelers such as Airworldwide, RMS and Core Logic in the past decade, more financial services professionals will have growing access to the cost of both actual and avoided loss from extreme events. While cities cannot afford these big modelers, financial sector parties are applying them to city problems and generating new methods to create “bankability” – revenue generation from projects that traditionally don’t generate rates or fees. For instance, resilience bonds, described in a very approachable way by re:focus partners in this report, link future insurance savings to a bank of funds for current risk mitigation projects.

Along with these drivers, progress continues in the debt market, creating more means to fund city resilience. Most importantly, that headway should include a swift pivot of general obligation bonds from traditional investments that neither create collateral benefits nor consider climate change scenarios to resilience investments promising more long-term return and performance given future risk. That is really the only way to ensure we create resilient cities. But with close to 80,000 issuers of municipal bonds in the country, the four key drivers above are key for ensuring this transition.

At the same time, the growth of innovative bond mechanisms could also help cities increase funds for resilience. The District of Columbia has had success with green bonds for its water and sewer authority, while the Massachusetts Bay Transit Authority has created excellent examples of sustainability bonds’ utility. The resilience bonds mentioned above are another in this category. Of course, catastrophe bonds – some with hurricane triggers – are another insurance-linked mechanism for getting money to cities after disasters.

In a future post, I will suggest ways cities can invite more resilience finance, given these market levers and financial means.

This op ed originally appeared on Triple Pundit

The post Paying for Resilience: Market Drivers and Financial Means appeared first on Innovation Network for Communities.

• Investors who deal in debt and equity and seek to benefit from the risk and opportunity that climate change creates.
• Urban planners and nonprofits dealing in social equity and cohesion and eager to prevent harm based on risk and opportunity created by climate change.

Will these two paths converge in the wood, as Robert Frost put it? Or, is it never the twain shall meet as Kipling expressed it?

According to the United Nations-supported Principles for Responsible Investment, $70 trillion (U.S.) of assets under management integrate environmental, social and governance (ESG) factors into core operations. But, peeling back that good news, would we see more social equity ensuing? By and large, the positive and negative implications on communities of climate change aren’t being addressed.

I frequently note that climate change exacerbates the tale of two very different futures – rich getting richer from extraordinary resources for resilience and poor getting poorer due to precarious resilience in everyday circumstances. What would it take for those two futures to cause investors to integrate social equity into their climate strategies, creating what I call Finance “Adaptation Equity?”

First, though, they would have to grasp – and care about – social equity issues. Those investors already trying to achieve sustainability goals are likely to see social equity as material to financial equity because it:

1. Accomplishes two ESG pillars – Environment and Social – that link the mitigation of physical risks of climate change with the enhancement of communities. Think of aligning with international standards related to human rights or the 17 U.N. Sustainable Development Goals.
2. Unveils new investment opportunities in physical assets that can enhance community equity such as infrastructure and real estate.
3. Responds to an admittedly small group of impact investors who focus on beneficiaries and aim for responsible investment to be defined by social equity.
4. Portends new pathways for longer-term investors (e.g., pensions) and development funders (e.g., blended finance teams) to apply their assets to climate and inequity affected sectors and regions.
5. Enhances understanding of systemic risks within the financial ecosystem by connecting climate change and inequity, especially given that without concerted effort, climate change will make inequity worse – and inequity has been proven to impact markets.

Still, for finance equity to flow to social equity requires work. Here are three strategies for each.

Investment equity

1. Include social equity principles in investment policy statements and goals as well as in requirements for consultants and advisors. Ask, “Will this asset improve the lives and livelihoods of lower resourced communities?”
2. Make social equity a part of risk mitigation assessments for climate-exposed assets, broadening the scope of the Task Force on Climate-Related Financial Disclosure guidelines to ensure that social elements are privileged.
3. Insist social equity be part of green bond project frameworks, asking if the infrastructure asset will have an equal or greater number of lower-resourced beneficiaries.

Social equity

1. Include means to raise fees and taxes related within social equity projects to make them more attractive to financiers. Ask, “How can we make this project a revenue generator?”
2. Make calculations that show the market benefits of social equity in your geographies and communicate them to public and private stakeholders.
3. Insist that social equity be part of financial assessments for infrastructure and other projects by being present at negotiations and integrated design discussions.

As efforts create successes, failures and draws, both groups should communicate action on social and investment equity with their clients and beneficiaries to help build this field of practice.

This piece originally appeared in Triple Pundit.

The post 6 Steps for Building a “Sweet Spot” Where Social and Financial Equity Meet appeared first on Innovation Network for Communities.

Many experts predicted this was likely – and I don’t mean the climate scientists.  The Global Risk Perception Report – the latest of which came out last week – has for the last five years included the failure of climate change mitigation and adaptation on its list of the five global risks in terms of impact. It bases its list on survey data from about 1,000 World Economic Forum advisors worldwide. Other risks in that set also are climate-related such as water crises, major natural disasters and extreme weather events.

Plus, the stakes are high for the real estate industry. The UNFCCC 2016 Biennial review of climate finance notes that $35 trillion in real estate assets will be at risk in 2070 if we make no changes to our current carbon emission trajectory. That figure represents about half of today’s global assets under management in any industry sector.

But how do these risks relate to the U.S.? The shocks of powerful storms can destroy many of those assets, as the devastation from this year’s climate disasters reminds us. Longer-term changes in temperature can cause other shifts. Even from where I sit in the middle of the country in Chicago, we are in the midst of a shift to a climate that will look more like New Orleans by the end of the century.

So, there are both orderly shifts and shocking disasters occurring because of our changing climate, and I think one question we want to ask is: What does that mean for our shift as investors?  Will it be orderly or will it be a flight?

We can’t say we haven’t been warned. This analysis from Zillow shows that if we have sea level rise of six feet – predicted by the end of the century along much of the U.S. coast – we lose houses worth roughly $900 billion in value. And this applies just for coastal properties. It doesn’t include other risks such as inland flooding and fire that also loom. It also doesn’t value the PTSD, injuries, loss of life, loss of community and livelihoods that these figures suggest.

These data came to mind as I was preparing to speak at this week’s National Association of Real Estate Investment Managers Sustainability and investment Summit, whose tagline is “License to Think in Public.”

One of the most thought-provoking data I shared:  U.S. counties facing the greatest risk from natural disasters have the highest and quickest rising home values.   Counties with the very high risk from these disasters have seen a 55 percent appreciation in their already very costly homes in the last 5 years.

The U.S. finally received the much-anticipated Multihazard Mitigation Council’s latest cost benefit analysis, illustrating that, on average, every dollar invested in disaster mitigation pays back $6.

The investors at NAREIM, representing over $1 trillion of assets under management, think it should, and some even think it will. What they need: project-level natural hazard data that includes climate change projections. This is something the climate resilience field is working on, with a variety of firms jockeying to be first with the roll out of their proprietary software.

In the meantime, as my fellow panelist Chris Smy, Global Practice Lead at Marsh Inc., noted, the stakes are high as insurance companies, by and large, do not price their policies according to the longer-term climate risks, and developers persist in going where the money is, which is along the coast.

Yet Darob Malek-Madani with National Real Estate Investors showed that some investors are taking notice. His firm finished a study that convinced them to no longer invest in Miami. Except for the financial situation of the state and city, he said, they might even prioritize Chicago.

Jack Davis – RE Tech Advisors and a resilience leader with Urban Land Institute – reminded us that the stakes go well beyond real estate. As the New York Times reported last year, gross domestic product, especially in the Southern states, is predicted to record losses of 10-20 percent of GDP, hitting the poorest residents hardest.

I thought that when real estate investors bring equity questions to the table, we can perhaps sense a shift underway. Certainly, the investment community at large is more vocal about the risks than in the past, though silent on the equity questions. The Financial Stability Board’s Taskforce on Climate Change-related Financial Disclosure (FSB-TCFD),led by Bank of England Governor Mark Carney and Michael Bloomberg, is developing climate-related financial risk disclosure commitments for companies. The big guys, though, are not waiting for that guidance to disclose. My library is filling with articles that say what BlackRock demonstrates: Their investment stewardship features climate risk disclosure as a key priority.

While my climate resilience colleagues often ask where we can find financing for climate resilience, this group of investment managers brought a fresh spin to the money question: How can we avoid future investments in risky properties? Both questions are valuable, and it’s great to see some in the real estate industry “thinking in public” about how to make this market transformation happen.

Post originally appeared on Triple Pundit

More from Joyce Coffee

Image: Mar-A-Lago Visualization, Climate Central N. Lamm

The post Real Estate Investors Finally Consider Climate Risk appeared first on Innovation Network for Communities.

It’s a cornucopia of innovation with the city as a lab. And it’s paid for with an equally creative mix of funds, from consent decree-induced storm water rate increases; legal settlements after utility failures; federal and agency grants and incentives; and philanthropic partnerships with nonprofit community organizations.

What will it cost?

As we enter an era of demands on cities sparked by climate change–induced shocks and stresses, ingenuity by cities is in high demand. Various estimates of adaptation/resiliency[1] funding needs exist. For instance, the United Nations Development Program projects that adaptation costs could range from $140 billion to $300 billion by 2030 – and between $280 billion and $500 billion by 2050 (source). In the U.S., the Union of Concerned Scientists, a source for cost estimates to remedy such risks, estimates that sea-level rises of 13-to-20 inches by 2100 would threaten privately insured coastal property valued at $4.7 trillion (source).

In addition, the Risky Business initiative notes that increases in temperature, heat waves and humidity will drive up demand for energy and require the equivalent of 200 new power plants nationwide that could cost up to $12 billion a year by 2100 (source). Plus, we already know how costly it can be to respond to climate change. Hurricane Sandy in 2012 cost New York $32 billion in damage and loss.[2] Earlier, thunderstorms, tornadoes and flooding in the summer of 2008 caused more than $18 billion in damage and 55 deaths nationwide, primarily in the Midwest.

Communities need funds to shore up their critical infrastructure assets, such as transportation infrastructure, wastewater treatment, telecommunications networks and electricity and gas supply. Funds are required for projects where resilience is a primary function to enhance a particular geography (e.g., a new sea wall) and to boost traditional mainstream projects’ resiliency attributes (e.g., elevating an existing bridge). Both primary function and resilience projects can bring big paybacks. Global reinsurer Zurich calculates that for every dollar spent on targeted flood-risk reduction measures, five dollars can be saved by avoiding and reducing losses.

Where will cities find the funding stream to support inventive resilience-related projects that strengthen the capacity of governments, communities, institutions and businesses to survive, adapt, and grow in the face of increased climate-driven shocks and stresses? Based both on my role in the Global Adaptation and Resilience Investment work group and on dozens of conversations with resiliency fund leaders, resilience initiatives, hazard mitigation experts and regional collaborations (primarily in support of the Regional Plan Association’s Regional Resilience project for the Fourth Regional Plan entitled “Establishing a Regional Resilience Trust Fund”), here are three elements to a fresh era of market finance.

Collateral Benefits

In many communities, those most at risk from climate impacts are poor or disenfranchised residents. Their greater risk can reflect such factors as lower insurance penetration, fewer savings, language-barriers, fewer funds to dedicate to maintenance, more unemployment, less access to information and more assets in lower-lying areas. When planners focus on improving infrastructure and social structures in more vulnerable communities, projects reap collateral benefits, known as “resilience dividends.” In these situations, a future disruption doesn’t become a disaster and shorter-term economic and social benefits are realized. The key lies in setting priorities for proposals that decrease economic vulnerability along with climate vulnerability.

For practitioners, three practical ways build these collateral benefits into projects:

• Include government officials, project developers and citizens in project planning to create engagement and literal and figurative buy-in.
• Promote breaking traditional departmental silos to identify funding that can be used collaboratively.
• Emphasize system benefits over project benefits to promote projects that have positive impacts across both the targeted and surrounding communities.

Benefit Cost Analysis

Many city leaders already have a long-term mindset. They plan for their city’s wellbeing 20, 30 and 50 years into the future. But they need to develop it in their financiers by modeling long-term benefits and costs through assessments that go beyond a normal benefit cost analysis and include elements of equity, land use, safety and stability. Typically, basic project BCAs evaluate direct financial benefits (e.g., project revenues or decreased operational costs) and direct byproducts (e.g., labor days, taxes from business transaction revenue, etc.) Resilience-oriented BCAs also calculate impacts that are avoided in the future as well as current benefits, such as outdoor community amenities, job creation for project maintenance, changes in property values, changes in public health, value of land-based amenities and positive and negative impacts on lower income or minority populations.

Several models for long-term benefit cost analysis are emerging:

• The International Financial Stability Board’s Task Force on Climate Related Financial Disclosuresis finalizing a yearlong process to, among other things, create measures of climate risk.
• Standard and Poor’s system for “Evaluating the Environmental Impact of Projects Aimed at Adapting to Climate Change.”
• The National Disaster Resilience Competition, Department of Housing and Urban Development. (While this BCA is considered a good practice because it focuses on finance loss and return in terms of both future risks and future benefits and is a U.S. government source, its discount rate is likely too short for most projects because it doesn’t reflect the useful project life of 50-100 years).

Potential Sources of Finance

Both collaboration and long term BCAs should not only entice the finance community, they should make it more politically feasible to ensure that existing budgets and funds – such as general obligation bonds and rate-payer revenue – can be used for resilience projects. While cities often are wary of increasing their general obligation bonds, credit raters are rational actors and more of them are mindful of resilience. Simply consider Standard &Poor’s recent reports on the impact of climate risk on sovereigns and corporations. In any case, these features should make financing with any mechanism easier.

Here are some other funding mechanisms to consider[3]:

• Community Reinvestment Act (CRA) investments: Banks have shifted away from meeting their CRA goals with their general market share in low-value mortgages in the post-housing bust. The statute is flexible enough to allow investments for resilience that improve communities.
• EPA Supplemental Environmental Projects (SEP): Organizations (more than 600 across the country) such as utilities that are fined for violating various environmental statutes should finance resiliency solutions process across the states and territories.
• EPA Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF): for local and regional infrastructure agencies.

• FEMA Hazard Mitigation Grant Program (HMGP): Funds for projects that mitigate future hazards after a president declares a disaster area can receive such monies.
• FEMA Disaster Deductible Program (DDP):A funding model under consideration by FEMA to promote risk-informed decision-making to build resilience and reduce the costs of future events. (N.B. open for public review until April, 2017)
• Green Banks: With tools such as green bonds and property assessed clean energy (PACE) programs, Green Banks are well placed to pivot to adaptation if their legislated authority enables the change.
• Green Bonds: Already funding resilience, Climate Bond Initiative (CBI) and others are working to introduce adaptation/resiliency components of all Green Bonds, and Standard & Poor’s has established a green bond rating system that includes resilience elements. 

• HUD Section 108 Loan Guarantees: HUD’S existing borrowing authority.
• HUD Community Development Block Grants (CDBG): Relatively flexible funding for community improvement that has a recent history of focus on resilience.
• Patient Capital: Investors with longer-term perspectives, such as pension funds, where the expectation of market return enjoys a longer timeframe.
• Philanthropy including existing funders Kresge Foundation and Rockefeller Foundation, and Climate Resilience Fund (CRF).
• Property Assessed Clean Energy (PACE): With reforms, it could become a Property Assessed Resiliency (PAR) program where debt and assets transferred with the property.
• Public-Private Partnerships (PPPs): PPP projects require long-term commitment and appropriate allocation of risk and, thus, are a fit for some adaptation projects.
• Social Impact Bonds: Investors with longer-term market returns who make payments when targeted social outcomes are achieved.
• Special Climate Change Fund (SCCF): Designed to finance and execute activities, programs and measures that relate to climate change in generally higher income countries.
• Taxes and Fees: Local governments can establish special resilience districts that assess taxes or fees. The California Earthquake Authority (CEA) is one model.

Conclusion

In today’s political climate, how can we pull this off? It is key to brand your resilience projects with a positive message (and offering solutions to a catastrophe). Your resilience projects promote safety, security and stability, and you can illuminate how they improve well-being of people, communities and property. Resilient infrastructure serves as a foundation less likely to crumble, flood, catch fire, be inundated, buckle or otherwise fail from the extremes of climate change. Herein lies a future that markets will depend on.

Originally appeared in Meeting of the Minds

[1] In the most basic definitions, “adaptation” is when an entity evolves to address changing conditions, while “resiliency” is the ability to bounce back and become stronger in response to changes.

[2] Union of Concerned Scientists, Climate Change in the US, the Prohibitive Costs of Inaction The Star-Ledger New Jersey On-Line: “Cuomo: Sandy Cost NY, NYC $32b in Damage and Loss”

[3] Special Thanks to Nick Shufro with JulZach Resilience for collaborating to compile these resources.

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A compelling ad for The Great Course on investing shows a man’s hands grasping a giant golden egg. It reminds me of the ever-present effort to learn from the past. Yet, with climate change, have we learned valuable ancient lessons or are we doomed to repeat past mistakes?

We humans survived an abrupt shift in the climate to bitter cold conditions 11,000 years ago and, in brilliant pictographs, Egyptian pharaohs related how they survived epic drought. Paleontologists and anthropologists find in the historic record of bones, household implements and living quarters that abrupt and harsh changes in climate over decades forced populations to move to survive. These climate disruptions also triggered population crashes and cultural changes.

Researchers speak of the intrepid prehistoric humans the way we speak of today’s preppers: “These hunter-gatherers had a lot of skills and knowledge of how to use the natural resources. They could make shelters and houses and hunt, fish and collect plant materials.” Some at a well-researched site in northern England practiced and endured enough resilience that they did not have to abandon their homes or significantly change their way of life. A certain deer species appears to have been the primary food and clothing source that enabled them to withstand the cold.

Researchers also discovered that ancient civilizations planned for and promulgated policies – including cross-breeding animals to make them drought-tolerant and moving their agricultural heartlands to more verdant areas – to withstand a hundred-year drought. They were able to help their neighboring former enemies to prevent the worst of a famine. Still, we cannot know exactly how prehistoric and ancient humans persevered.

Several researchers think a major key to their survival was that for generations, they survived climate shifts. It had become a part of their lives, so they recognized signs of change and prepared to help their communities survive.

By contrast, we have experienced many centuries of fairly stable climate. We not only are out of practice employing resilience to these extremes, but it appears we’re devoid of imagination as a society for what we ourselves have wrought and must do to prepare.

Today, climate disruptions definitely impact us. Consider:

• Health: Asthma cases have risen dramatically. Between 2001 and 2009, the number of patients diagnosed with asthma rose by 4.3 million, according to CDC reports. It is a leading cause of school absences across the country.
• Quality of Life: Extreme heat was the leading cause of weather-related deaths – more than 1,200 – in the U.S. between 2004 and 2013. The extraordinary heat wave that killed some 70,000 people in Europe in 2003 should have been a once-in 500-year event.  At the current level of global warming, it has become a once-in-40-year event.
• Housing: Hurricane Irma destroyed one-of-every four homes in parts of Florida while over half of residential and commercial properties in the Houston metro are now considered at “High” or “Moderate” risk of flooding.

Like those ancient peoples, we have the perfect storm of events. They grappled with earthquakes, climate disruption and, consequently, invading neighbors. We confront earthquakes, deep societal inequities and pressing issues of a changing climate.

So, here is where we are at in terms of adapting to climate change. The assessment reflects a study of 100 Adaptation projects and leaders that I conducted with Dr. Susanne Moser and other researchers in 2017, funded by the Kresge Foundation

The positive view:

Some adaptation practices are underway and climate impacts are driving them. New actors and networks have energized the adaptation field, including such city networks as the Urban Sustainability Directors Network and 100 Resilient Cities. Adaptation also improves in certain areas: the adaptation knowledge base and increasingly available tools supporting adaptation. In addition, science and practice work together more frequently as leaders experiment with adaptation.

The negative view:

Driven largely by crises, the adaptation field is not creating a unifying vision/creative imagination for a future where people adapt and thrive. Adaptation remains mostly reactive rather than proactive. A sense of urgency is missing, and too many adaptation efforts are stalled at the planning stage. The prevailing emphasis on urban adaptation leaves small towns and rural areas behind and neglects important interdependencies between cities and surrounding areas. And while awareness grows as to the disproportionate impact of climate change on the most vulnerable—and the need for equitable solutions—few adaptation actors grasp how to incorporate equity into their work.

The future:

To avoid becoming the culture that fails, even in comparison with than prehistorical and ancient civilizations that survived climatic changes, we must accelerate mitigation and adaptation efforts significantly while building social cohesion and equity. This will close the yawning chasm through which we could fall. Today, the planet’s average surface temperature has risen about 2.0 degrees Fahrenheit since the late 19th century, and models predict it may rise by tens of degrees – indeed, 30 degrees Fahrenheit in some places – by century’s end.

 We must strive to prevent, minimize, and alleviate climate change threats to human well-being and to the natural and built systems on which humans depend. It will prove exciting to fulfill this mission because by doing so, we create fresh opportunities to address the causes and consequences of climate change in ways that solve related social, environmental and economic problems.

But to achieve this, we must expand the number and type of leaders involved in helping communities adapt. Increase our capacity and tools of persuasion to make adaptation work more impactful. Ensure that the funds spent and policies enacted are in line with achieving this mission.

Egyptologists who study that empire’s collapse caution that when leadership “has feet of clay and isn’t willing to take the challenge on in an innovative way, then often the challenge will overcome them.”

Today in our democracy, that leadership lies with all of us. We must create transformative change. And be brave and uncomfortable in embracing the challenges of both social inequity and climate uncertainty as we do so.

Pray that in the timelines of geology, climate and human history, we can pivot from a relatively stable climate to one that mirrors nothing humans have experienced historically. Our survival in the new era of climate change depends on it.

This blog originally appeared in Triple Pundit

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As I reported in late 2016 in a Triple Pundit article, “Laurels for Credit Rating Agencies, Levers of Change in the Adaptation Market,” the rating agencies have been exploring this subject for several years.  Last November, Moody’s Investors Service explained how it incorporates climate change into its credit ratings for state and local bonds. It said that cities and states are at greater risk of default if they don’t deal with risks from rising seas or strong storms.

So, what specifically should we expect from the rating agencies?  I recently participated in a Brookings Institute panel with Standard and Poor’s Managing Director Kurt Forsgren, who said that the S&P will increasingly consider climate change in its rating analysis.

Climate change risk and credit rating agency assessment

Today, in factoring climate change risk into municipal ratings, the rating services focus primarily on management effectiveness and planning that includes climate change risk. This is especially true in sectors with distinct climate risks that apply to their assets or revenue sources (such as water and electric utilities).  They often perform a qualitative assessment of the climate change risk when detailed information is lacking.

In addition to risk, they assess municipal resilience that looks for:

• Long-term management plans with adequately funded emergency funds
• Proper insurance coverage for the climate related risks for the region
• Deeper and more diverse economies

Evidence from Utility Districts

But, in reality, what are they seeking? For instance, S&P analysis for corporate ratings indicates that natural catastrophes lead to a one-notch downgrade 40 percent of the time. We know that the Municipal Utility District (MUD) ratings in and around Houston did not take a near-term hit in S&P’s assessments immediately following Hurricane Harvey, although the agency notes that it does “not preclude longer-term [rating] challenges for Hurricane []- affected [] MUDs.”

S & P’s specific comments for the MUDs are instructive for all build projects, planned or in place: “S&P Global Ratings believes the largest potential long-term rating impact to MUDs would be caused by a decline in the district’s assessed values, which support not only operational revenue but also the district’s ability to pay its debt burden, which is a primary driver for our MUD ratings.”

It added: “MUDs with comparatively higher tax rates may face some practical taxing limitations as affected areas adjust their tax rates to compensate for declines in assessed values.”

Although S&P believes the robust reserves of most MUDs will insulate them from rating downgrades, the impacts they expect from climate disruption are pretty clear here. Credit rating agencies see the physical impacts of climate change as material to the financial system. The larger the shock event, the longer and deeper the impact on credit quality, especially for those with poor credit quality before the event.

This is a major reminder about the importance of resilience.  Communities struggling with poor credit quality will find it doubly difficult to borrow at favorable rates as the impact of climate change continues to grow – further exacerbating both market and social inequities.

Resilience Likely Helps

It seems we have the market signal we’ve been waiting for in the climate action community. This is a call to arms for all resilience brokers to build security, stability and sustainability in lower-resourced communities.

The key actions:

1. Get ahead of climate risk by making knowledge of it front and center for existing physical asset and future investment planning.
2. Collaborate among sustainability, risk, finance and insurance leaders internally and externally; climate change is no longer an issue to shift to the sustainability officer’s desk.
3. Through actions one and two, make sure that every investment is an investment for resilience, not just a few show ponies.

References

S&P Global “Near-Term Rating Stability Does Not Preclude Longer-Term Challenges for Hurricane Harvey-Affected Texas MUDs” 5 September 2017. https://www.spglobal.com/our-insights/Near-Term-Rating-Stability-Does-Not-Preclude-Longer-Term-Challenges-for-Hurricane-Harvey-Affected-Texas-MUDs.html

S&P Global “How Long ‘Til We Get There? Major Post-Hurricane Recoveries in Recent Years.” 7 September 2017. https://www.spglobal.com/our-insights/How-Long-Til-We-Get-There-Major-Post-Hurricane-Recoveries-In-Recent-Years.html

S&P Ratings Direct, “Climate Change Will Likely Test The Resilience Of Corporates’ Creditworthiness To Natural Catastrophes”, 20 April 2015.
 http://www.actuarialpost.co.uk/downloads/cat_1/SP_Climate%20Change%20Impact%20On%20Corporates_Apr212014.pdf

Blog originally appeared on Triple Pundit 

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