Julia and Graham chart various innovative ways to use OZs that are already being pursued:

“The OZone program is a good fit for clean energy and sustainable development. First, the tax benefits — capital gain tax deferral, partial forgiveness of tax on capital gains and forgiveness of additional gains on investments in OZones — make it easier to include sustainability features because the projects can deliver higher returns and be structured with simpler capital stacks. The higher return on Opportunity Fund investments, for example, could allow sponsors of clean energy projects to add features to projects or partner with energy customers that are considered more risky, as proposed by Jon Bonanno, CXO of New Energy Nexus. New Energy Nexus provides assistance to global energy entrepreneurs.”

“Second, the program allows for more comprehensive and holistic projects. In fact, the lack of restrictions on investments in the Opportunity Zone program creates an opportunity for integrated, interdisciplinary development plans. With the clarifications in the federal rules for OZones making it clear that clean economy projects are eligible, every project can be a clean energy and a clean jobs-producing project.

“Third, the program allows for a deeper commitment to neighborhood success than many past economic development incentives. That’s why Bo Menkiti of the Menkiti Group has teamed up with Local Initiatives Support Corporation (LISC) to pursue OZone funding for its Neighborhood Investment Model, which includes LEED buildings. Because OZone investors must keep their capital invested for a full decade to realize the maximum tax benefits, they have a stake in a neighborhood’s long-term success. In this way, the OZone program creates space to combine clean energy projects with initiatives to train local workers and nurture new local clean economy businesses.”

Full Parzen/Graham report

The post Putting Real Urban Opportunity–Carbon-Free and Equitable–into Opportunity Zones appeared first on Innovation Network for Communities.

Each of these cities has had to find its own way to public and private financial resources, because there is no system in place for solving the problem of how to pay for climate resilience—no cost-sharing arrangements, for instance, for resilience infrastructure across local, state, and federal levels of government. The cities are involuntary pioneers faced with growing climate hazards and exposure that require more money for resilience.

Examining these cities’ pathways revealed common strategies that, while only reflecting the leading-edge of urban climate-resilience financing practices, quite likely foreshadow what other cities already or may do. These strategies form the content of Playbook 1.0. But the pathways also suggest the limits of what cities are able to do, with important implications for the continuing evolution of the urban playbook for climate-resilience finance.

Playbook 1.0 Strategies;

1. Generate Local Revenue. Producerevenue for government climate-resilience public infrastructure by taxing local property owners and charging utility ratepayers.
2. Impose Land-Use Costs. Adopt land-use and building regulations and policies that place undetermined future resilience-building costs on property owners and developers, rather than on government.
3. Embed Resilience Standards into Future Infrastructure Investments. Ensure that all future capital spending for public infrastructure will be designed to strengthen climate resilience as much as possible.
4. Leverage Development Opportunities. Link resilience-building projects with real estate development opportunities to generate public-private partnerships that invest in both public infrastructure and private development.
5. Exploit Federal Funding Niches.Identify resilience-friendly federal funding streams and develop projects that fit pre- and post-disaster program requirements.
6. Tap State Government. Mine existing state programs, or seek to modify them, to obtain funds for local climate-resilience efforts.
7. Develop Financial Innovations. Explore the use of innovative mechanisms for generating public and private revenue for climate-resilience projects, including district-scale financial structures.
8. Pursue Equity in Resilience. Factorsocial and economic equity into funding and financing actions by serving economic development, housing, and other needs while investing in climate resilience.

The post New INC Report: Playbook 1.0: How Cities Are Paying for Climate Resilience appeared first on Innovation Network for Communities.

Purpose

This research project’s purpose is to identify ways to accelerate the development and growth of public and private financial resources that US cities can use to implement climate resilience plans and projects. Cities often cite access to capital as a major barrier to the implementation of their climate resilience plans.

 Findings

Climate risks disrupt city financing.Cities use multiple, well-established public and private systems to pay for their public responsibilities, but these systems do not have the ability to meet the challenges of financing the mounting climate resilience needs of cities. Barriers include:

• Insufficient publicrevenue for climate resilience projects.
• New and uncertain financial risks posed by climate changes.
• Inherent imbalances between the burdens and benefits of climate resilience projects.
• Misaligned public policies and markets.
• Resilience projects that fall outside of traditional municipal jurisdictions.

Emerging innovations in climate resilience finance do not sum to a system-building approach.A growing number of developments seek to address barriers and opportunities in climate resilience financing. We identified 30 of these [Table 1], but they are mostly “one-off” innovations and changes made by an individual city or financial institution or insurer for a specific project or financial mechanism. Most of these efforts are largely disconnected from each other. The public and private sector players engaged in climate resilience finance efforts do not have a shared vision, framework, or strategies for developing, as quickly as possible, a comprehensive, large-scale urban climate resilience financial system. The set of innovations does provide a great deal of the research-and-development that could evolve into a more systemic and impactful stage of change.

A system for city climate resilience finance would contain three key elements:*

• City transaction capabilities, including adaptation planning, adaptation investment planning, governance arrangements at metro-region and city district scales; and public revenue sources and funding mechanisms.
• State and federal government policies, including: adaptation planning requirements and support; climate resilience standards; flexible governance structure frameworks; insurance market regulations and public “last resort” insurance policy; and grants and loans for city adaptation projects.
• Financial, insurance, and real estate market capacities, including products and services; risk assessment and disclosure; risk pricing; and lending and investment standards.

Recommendation

Development of an urban climate resilience financial system can be accelerated and expanded through collaborations of cities, state and federal governments, and real estate, insurance, and financial markets, as well as community-based sectors such as health care and utilities, that prioritize, design, and implement system-building solutions.

Given the highly distributed nature of the system that exists and needs to be developed, cities—as the entities directly facing the financing challenge—are the only players with an overriding interest in developing all of the elements of a climate resilience financial system. But they would need support and resources from their partner organizations, other sectors and levels of government, as well as philanthropy, to help lead and sustain such an effort.

A starting point for developing a system-building collaborative approach would be to organize cities to link, learn, and align with each other, and act in concert with relevant private sectors and other levels of government to develop and implement projects that build a climate resilience financial system.

The post Research Report: Toward a Climate Resilience Financial System for US Cities appeared first on Innovation Network for Communities.

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.

For the past few months. John and I have been working with partners at Meister Consultants Group and Ramboll to understand the challenges and opportunities facing cities trying to fund their climate adaptation plans. It’s no secret that finding money is proving to be a big barrier to advancing urban adaptation, as we discussed in Essential Capacities for Urban Climate Adaptation. So it’s no surprise that lots of people–cities, NGOs, government policy makers, financial institutions, insurance companies, and others–are trying to do something about it. We’ve identified more than 30 innovations or revisions of current financial practice that are in the works, almost all of them at experimental scale. Now we’re thinking about what these add up to, how they contribute to the development of a system for urban climate finance. Below we provide a summary list of these various projects, divided into 6 categories based on what the goal is, and then some initial thoughts about what it looks like to shape these blooming flowers into a well tended garden. The categories:

A. Generating Public Revenues

B. Managing Financial Risk

C. Balancing Burdens and Benefits

D. Aligning Public Policies

E. Leveraging/Catalyzing Private Capital

F. Revising Government Jurisdictions

Accelerating and expanding the development of an urban climate-financing system could follow several approaches:

• Enhancing City-Level Transaction Capabilities. Cities need the ability to produce high-quality and equitable adaptation plans and projects with comprehensive, hybrid investment strategies backed by the necessary multi-jurisdictional governance arrangements and community support, and a technical capacity to implement transactions through a variety of financial mechanisms. Few cities have these capabilities in place for climate adaptation.
• Aligning Government Policies. Cities need state and federal governments to initiate comprehensive, aligned policies, regulations, and standards that support increases in public revenue and private capital for climate adaptation, and eliminate barriers for cities and distortions in market behaviors. Only a few states are moving in such a direction, as are some federal agencies such as FEMA, but the efforts are not usually aligned with each other or through engagement of cities and market players.
• Scaling Changes in Financial, Insurance, and Real Estate Markets. Cities need key markets to accurately price climate risk and develop and rapidly deploy risk management solutions for private capital, including revised and new products and services, and put in place standards for risk disclosure and resilience financing. “Making these market mechanisms work effectively requires a widely accepted set of standards and disclosures for buildings that signals the degree of resilience to the various actors and helps them assess risks more accurately,” as the Sustainable Solutions Lab of the University of Massachusetts-Boston reported in April 2018.[1]

[1] “Financing Climate Resilience,” 30.

The post Climate Money Trap: So Many Adaptation Finance Innovations, But What Do They Add Up To? appeared first on Innovation Network for Communities.

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.

More and more studies are emerging that tackle some of these questions, few of them more comprehensive and insightful than “Financing Climate Resilience: Mobilizing Resources and Incentives to Protect Boston from Climate Risks,” just off the presses. The 60-page report by the University of Massachusetts-Boston’s Sustainable Solutions Lab, produced for the Boston Green Ribbon Commission, is one of the few studies that combines a scan of the landscape of adaptation financing with the specific adaptation needs of a city. It’s not an adaptation investment plan; it’s a step toward such a plan. But in taking the step it also provides a knowledge asset to other cities: a framework for understanding what is possible and emerging in adaptation finance and how it fits–and doesn’t fit–with a city’s adaptation needs.

The picture that “Financing Climate Resilience” provides is, let’s say, cautiously optimistic without ignoring the real challenges faced by cities like Boston, which must take on serious adaptation costs due to sea-level rise. An obvious challenge is to muster the political will–of elected officials and stakeholders in the community–for paying the increased costs of adaptation. But just as necessary will be the development of innovations in governance and financing. Without new ways of collaborating at the regional level and at the district/neighborhood scales, and without new ways of assuring private investors and insurers that the risks of climate change will be managed, it will be difficult–perhaps impossible–to assemble the money needed to implement Boston’s adaptation.

Other cities and some states are also following analytic pathways, driven by the need to figure out where their adaptation money will come from. Gradually, as our research is finding, these pathways form a direction: cities, financial and insurance markets, and state and federal governments will have to develop a financing system for urban adaptation, not just a set of solutions for Boston, and a set for Miami, and a set for San Francisco. We’ll be reporting on that research soon.

The post Urban Climate Adaptation’s Money Trap 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.

The post Next Era of Market Finance for Resilence appeared first on Innovation Network for Communities.