I couldn’t seem to turn on the TV this week without being inundated with coverage of the ongoing floods and tornadoes in the Midwest. The dearth of other content is not just due the doldrums of the sports and political seasons — things are genuinely getting worse on the disaster front. Much worse.
The horrible scenes of twister damaged homes across the Midwest and continuing flooding along the entire Mississippi River merely displaced the stories on recovery efforts from the Hurricanes Maria, Irma, Harvey, Michael as well as the Camp Fire and other drought inflamed disasters in California and the Western U.S.
The Fourth National Climate Assessment predicts more frequent and severe storms, longer and more severe droughts, and the continued and likely accelerating rise of sea levels. All of this will only add to the challenges faced by states, counties and municipalities that are on the front lines of these disasters and to the taxpayers who foot the bill for the hundreds of billions in recovery and rebuilding costs.
The Government Accountability Office found that the increasing frequency and scale of disasters as well as the federal government’s role in funding recovery and flood and crop insurance, make climate disaster a high risk for federal fiscal exposure. GAO reported that the federal recovery efforts alone have cost nearly half a trillion dollars since 2005. To put that spending in context, it represents approximately $4,000 out of the pockets of every American family. Congress will either have to put our nation further into debt or shift the burden to our taxpayers. Addressing climate change is not only an environmental imperative, it’s critical to our nation’s economic security.
It is clear that we have learned a lot about how to respond to, and recover from, major disasters. In the past 40 years. federal agencies, state and local governments, and the extensive network of volunteer organizations such as the American Red Cross, Habitat for Humanity and the Cajun Navy deserve much credit for their growing ability to save lives and help rebuild communities.
It is also clear that just getting better at response and recovery will keep us on the defensive, always playing catch-up. More importantly, the focus and investment post-disaster does little to keep us safe in the first place. We have to retire the old approach that we can just come in after the storm or fire and rebuild — even if we rebuild stronger. Ask anyone who lost their home, business, community or especially a loved one to one of these disasters. They will tell you that as appreciative as they are for the world-class support from governments and volunteers, it’s small comfort for the trauma and years of personal recovery they face. We need to get ahead of the curve by investing in resilient communities and infrastructure so fewer families have to live in devastation.
Congress is beginning to address this. While some members seemed locked in a partisan fight that is keeping funding from storm and fire ravaged communities in Texas, Florida, Puerto Rico, and California, Congress did add a program in the 2018 Disaster Recovery Reform Act that shines a ray of hope on efforts to be more proactive in disaster mitigation. The creation of a National Public Infrastructure Pre-Disaster Mitigation fund, which FEMA plans to implement through a new program called Building Resilient Infrastructure and Communities allows FEMA to invest in communities before a disaster strikes. Research by the National Institute of Building Sciences found that just building to the current resilient building codes returns 11 times the cost of the initial investment. FEMA’s new program will allow several hundred million dollars in resilient investments to move forward each year without having to run the congressional appropriations gauntlet, but this is really just a small start.
FEMA’s new pre-disaster fund represents only six cents for every dollar spent on reactive recovery. We need to help communities rebuild, but we also need to be serious about investing to make our communities safe from the coming storms, fires, and other climate threats. While construction to current resilient building codes is the right answer for new construction, it doesn’t address the vast balance of structures built on codes that are old and don’t address the new science and technology of climate resilience. We need to invest in fixing or replacing our failing infrastructure and ensuring that all new construction is resilient to future risks — or we will face this problem all over again.
This doesn’t mean that the federal government alone shoulders the entire responsibility. A successful resilience strategy will only work if we bring both the public and the private sectors into the fight. Resilient building codes are one example, but we also need to value and incentivize resilient investments for everyone.
There is a silver lining to our climate challenges — economic growth. Americans are very good at innovating and building and we can leverage our need to be more resilient by growing the economy with good resilient and sustainable jobs. Some of these jobs are found in building, upgrading and maintaining our new and existing infrastructure to make it resilient to the increasing risks from a climate-impacted world.
Not only can we put Americans to work building our resilient future, we can take the lessons we learn in that effort and export it to the rest of the world. This is an approach that works for all Americans and provides a strong economic as well as environmental future for people in all parts of our nation and the world.
This is what we did to become world leaders in democracy, agriculture, manufacturing and technology in the previous centuries, and we can do it with climate in the 21st century. Climate change is real and addressing it is literally an opportunity we can’t afford to ignore.
This story was first published on The Hill.
What does the future hold?
New research on sea level rise emphasizes the potential for dire changes over the course of the century. Recent satellite data suggests that warming water is causing East Antarctica to melt more quickly than previously thought and a study released in early May found that almost a quarter of West Antarctica’s ice is thinning, with its largest glaciers shrinking five times faster than in 1992. A study based on expert opinion found that there is the possibility of sea levels rising by 2 meters (6.5ft) under an extreme scenario of 5˚C global temperature increase. This would mean an area of land as big as Libya would be lost, and up to 2.5% of the population globally could be displaced.
Extreme scenarios of sea level rise will have severe impacts on our cities and economies. Sea level rise is happening today to a lesser extent; however it is already having tangible impacts on real estate values. This means increasing costs for property owners and tenants, but it also has far-reaching market impacts on access to and cost of insurance, fluctuations in market values and potential increase in local taxes to fund adaptation efforts.
Of all U.S. states, Florida is expected to experience the greatest consequences of sea level rise. Between 1960 and 2015, sea levels along the Florida coast rose by 10-15 cm (4-6 in), and the range of projections vary wide looking a few decades out, with projections ranging from 33 to 122cm (13-48 in) by 2060.
Widespread flooding risk in Florida
65,000 homes in Florida worth $35 billion are expected to be underwater or impacted daily by high tides in 2040. From soaring insurance premiums and increasing risk of disclosure to declining property value and diminishing tax revenue, sea level rise is already challenging property owners, investors and banks. Among other impacts, the value of single-family homes in Miami-Dade County that are exposed to sea level rise declined by about $465 million between 2005 and 2016.
Furthermore, climate change is predicted to increase the number of strong hurricanes in the region. These stronger storms will combine with sea level rise to exacerbate the impacts of extreme floods. Storm surge flooding damages buildings and landscaping, destroys merchandise, and can also have wide-reaching economic impacts due to damaged power and transportation infrastructure.
Last but not least, tidal flooding, also called “nuisance” or “sunny day” flooding increased from 1.3 to 3 days per year in the Southeast from 2000-2015. By the end of the century tidal flooding could happen daily. Even with no rainfall, these floods have significant impacts – halting traffic, overburdening drainage systems and damaging infrastructure.
Investors and businesses have a responsibility to understand these risks: using best available science to measure exposure to sea level rise and other flood risks, getting informed on adaptation efforts by local governments, and engaging with local industry associations or other groups to promote further investments in resilience.
Four Twenty Seven works with investors to provide portfolio hotpot screenings and real time due diligence with site-specific data on sea level rise and other climate risks. Contact us for more detailed analysis and site-specific data on sea level rise exposure and detailed analysis of local jurisdictions’ response.
Climate risk disclosure is essential to building market transparency and a resilient financial system. France led the way in mandating climate risk disclosure in 2015 and continues to play a key role in catalyzing the financial sector’s understanding and disclosure of climate risk. As part of its seven part series highlighting approaches to green finance in “pioneering countries,” Germanwatch published a piece by Four Twenty Seven on France’s role in promoting climate risk disclosure. Read the article below, or find the German version here.
Climate Risk Disclosure: France Paves the Way
Already in 2015, France adopted a law on climate risk disclosure paving the way for protecting economic systems from the consequences of climate change. But others need to follow.
Financial institutions and governments around the world are acknowledging the importance of climate change on the sustainable finance agenda. The World Economic Forum identified climate change-related risks as the top three most likely global risks for 2019, followed by data fraud and cyber attacks, and as four out of the top five most impactful risks, after weapons of mass destruction. This underscores the importance of building economies resilient to climate change impacts.
In 2015, just before the 21st Conference of the Parties (COP21) and the Paris Agreement, France became the first country to pass a law requiring publicly listed companies, institutional investors and asset managers to report their climate-related risks, including both transition risks (associated with the transition to a low carbon economy) and physical risks (associated with extreme weather events or chronic stresses affecting businesses and economic assets).
While today’s conversations about the Paris Agreement and sustainable finance require a transition to a low carbon economy, governments have realized that they also require discussion of the economic risks of physical climate impacts that will occur whether or not Paris climate targets are met. Reaching the adaptation goals of the Paris Agreement requires catalyzing investment in climate resilience. Increasing transparency on companies’ and investors’ exposure to physical climate risk is an essential first step towards identifying opportunities to invest in adaptation and build resilience.
The Approach: Comply or Explain
The French Energy Transition Law and its Art. 173 laid the regulatory groundwork for integrating climate risk transparency into the national sustainable finance approach. The regulation uses a comply or explain approach, providing flexibility for how firms disclose their risks and allowing firms to opt-out from reporting, with an explanation. This fosters discussions among investors, insurers and businesses to find the most informative and feasible risk analysis and reporting methodology across sectors.
The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released its final recommendations for climate-related disclosures in June 2017. These voluntary recommendations provided additional direction on how to disclose climate risks, but still do not provide concrete metrics. French organizations, such as Finance for Tomorrow and I4CE, the Institute for Climate Economics, help to catalyze continued research on this topic and keep climate on the sustainable finance agenda.
International initiatives also help facilitate ongoing thought leadership: for example the report Advancing TCFD Guidance on Physical Climate Risks and Opportunities prepared by the European Bank for Reconstruction and Development and the Global Center for Excellence on Climate Adaptation, based on working groups of financial sector experts. While data providers, such as Four Twenty Seven, help to fill data gaps by providing asset-level data on climate risk exposure, there will continue to be ongoing conversations about how best to incorporate this information into actionable disclosures.
Other countries follow the example of France
Art. 173 has helped to center the Paris marketplace in the landscape of green finance. Action on climate risk disclosure continues to increase both within France and internationally. Influential financial actors are beginning to report their own risk exposure, encouraging the market to follow suit. The French Central Bank (Banque de France) for example, released a comprehensive analyses of physical and transition risk in its portfolios in compliance with Art. 173 and TCFD, aiming to set an example for emerging best practices for disclosure. The Dutch Central Bank assessed the exposure of its financial sector to water stress and other environmental risks. Countries such as Spain and Sweden have voiced their support of the TCFD and their consideration of legislation similar to Art. 173, and in July 2018 the Italian insurance supervisor IVASS released a comprehensive reporting requirement for Environmental Social Governance (ESG) risks, including climate change.
In early 2018, the European Commission published an Action Plan: Financing Sustainable Growth, outlining ten actions with timelines by the end of 2019. This led to the development of a Technical Expert Group, which has four workstreams underway: developing a sustainable finance taxonomy, integrating climate change into non-financial reporting requirements, creating a green bond standard and creating carbon indices standards.
Art. 173 mandates an assessment of reporting progress made during the first two years of its application. This review may lead to more explicit guidance on reporting methodologies, potentially expanding the directive to apply to more actors. This, alongside increasing regulatory and investor pressure, will propel the continued improvement of physical climate risk disclosure. As uptake of climate risk and opportunity disclosure increases and is integrated into financial decision-making, France, along with other nations, will make important progress on building more sustainable economies.
To find out more about developments in climate risk disclosure read our newsletters “France’s Central Bank Publishes First TCFD Report” and “TCFD Reporting on the Rise.”
Do bond ratings reflect governments’ and businesses’ exposure to physical climate change? Founder & CEO, Emilie Mazzacurati, joins the Bond Buyer’s Chip Barnett to discuss physical climate risk for investors, businesses and governments. Emilie describes the financial sector’s growing awareness of material climate risk in their bond and equity portfolios and shares efforts being taken to understand and address these risk. Chip and Emilie also discuss the challenges cities face when striving to adapt to climate impacts, the benefits of building resilience and the interactions between corporate and community resilience.
For more insight on the interactions between climate change, cities and financial risk read our reports on Assessing Exposure to Climate Risk in U.S. Munis and Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks, or listen to our webinar on Building City-level Climate Resilience.
FEBRUARY 19, 2019 – SAN DIEGO, CALIFORNIA – Four Twenty Seven receives Climate Change Business Journal Awards for three climate change risk and resilience projects.
The Climate Change Business Journal (CCBJ) released its 10th annual CCBJ Business Achievement Awards, recognizing outstanding business performance in the climate change industry. CCBJ assesses markets and business opportunities across the emerging climate change industry and acknowledged Four Twenty Seven’s contributions to this field through our global dataset on climate risk in real estate, the development of the California Heat Assessment Tool and our contribution to the EBRD-GCECA initiative on Advancing TCFD Guidance on Physical Climate Risks and Opportunities.
Four Twenty Seven and GeoPhy earned the Technology Merit: Climate Change Risk Modeling and Assessment award for releasing the first global dataset on climate risk exposure in real estate investment trusts (REITs). REITs represent an increasingly important asset class that provides investors with a vehicle for gaining exposure to real estate portfolios. However, real estate is also increasingly affected by risks from climate change. Four Twenty Seven applied its scoring model of asset-level climate risk exposure to GeoPhy’s database of listed REITs holdings to create the first global, scientific assessment of REITs’ exposure to climate risk.
The California Heat Assessment Tool (CHAT) earned the Project Merit: Climate Change Adaptation and Resilience award for its innovative approach to helping public health officials, health professionals and residents understand what changing heat wave conditions mean for them, through a free online platform. CHAT is part of California’s Fourth Climate Change Assessment, a state-mandated research program to assess climate change impacts in California, and was developed by Four Twenty Seven, Argos Analytics, the Public Health Institute and Habitat 7 with technical support from the California Department of Public Health.
The European Bank for Reconstruction and Development and the Global Centre of Excellence on Climate Adaptation initiative on Advancing the TCFD Recommendations on Physical Climate Risks and Opportunities earned the Advancing Best Practices: Climate Change Adaptation and Resilience award. This project culminated in a conference and report building on Taskforce on Climate-related Financial Disclosure (TCFD) recommendations and providing common foundations for the disclosure of climate-related physical risks and opportunities. It identifies where further research or market action is needed so that detailed, consistent, industry-specific guidelines can be developed on the methodology for quantifying and reporting these risks and opportunities. Four Twenty Seven and Acclimatise provided the technical secretariat that led the working groups and authored the report.
January 15, 2019 – 427 REPORT. Building resilient communities and financial systems requires an understanding of climate risk exposure, but also of how prepared communities are to manage that risk. Understanding the adaptive capacity, or ability to prepare for change and leverage opportunities, of the surrounding area can help businesses and investors determine how exposure to climate risk is likely to impact their assets and what the most strategic responses may be. This report outlines Four Twenty Seven’s framework for creating location-specific actionable assessments of adaptive capacity to inform business and investment decisions and catalyze resilience-building.
Every investment, from real assets to corporate initiatives, is inextricably connected to its surrounding community. From flooded or damaged public infrastructure hindering employee and customer commutes to competition for water resources threatening business operations and urban heat reducing public health, the impacts of climate change on a community will impact the businesses and real estate investors based in that community. Thus, evaluating how acute and chronic physical climate hazards will affect local communities and communities’ responses enables investors and corporations to assess the full extent of the risks they face.
This report, Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks, outlines Four Twenty Seven’s framework for capturing a city’s adaptive capacity in a way that’s actionable for corporations seeking to understand the risk and resilience of their own facilities and for investors assessing risk in their portfolios or screening potential investments. The framework focuses on three main pillars: 1) awareness, 2) economic and financial characteristics, and 3) the quality of adaptation planning and implementation. It is informed by social sciences research, recent work by credit rating agencies, and our experience working directly with cities and investors.
While a city’s adaptive capacity plays a key role in determining whether or not exposure to climate hazards will lead to damage and loss, cities are also likely to find that their resilience to climate impacts is an increasingly important factor in attracting business and financing, as adaptive capacity is more frequently integrated into credit ratings and screening processes. It is valuable for both cities to understand how investors are interpreting adaptive capacity and for investors to understand which factors of local adaptive capacity translate into increased resilience and reduced financial loss for their assets.