Climate Change Lawsuit

Paying for Resilience: Market Drivers and Financial Means

When I worked for the City of Chicago applying its Climate Action Plan, our work was funded by the lack of climate resilience: The City had successfully sued the electric utility for failing to provide service during an extreme heat event, and the settlement paid for many staff and climate-related. That’s a rare situation, though. Today, requests from cities, nonprofits and philanthropy to figure out finance to help fulfill resilience dreams fill my inbox.

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 at least 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 bondsfor 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 post originally appeared on Triple Pundit.

Are You Vulnerable to a Climate Change Lawsuit?

Are You Vulnerable to a Climate Change Lawsuit?

This post comes from guest blogger Harlan Loeb, Edelman's Executive Vice President & Director of U.S. Crisis & Issues Management Practice.

The flood waters receded along the mighty Mississippi. Now look for a possible surge of climate change-related lawsuits to follow. Tort cases brought against companies by stakeholders who claim the companies knew a risk of a major flood risk existed and should have done much more before the deluge to mitigate the damaging effects to business continuity, employee safety and operational stability.

Ever since Hurricane Andrew struck Florida and Louisiana in August 1992, and Hurricane Katrina pummeled the Gulf Coast 13 years later, a roster of climate change lawsuits have evolved.  Right now, three climate tort cases are wending their way through the U.S. legal system. In one of the cases, Connecticut vs. American Electric Power, the U.S. Supreme Court is expected to issue a ruling by the end of June. 1

The climate change issue is controversial. No agreement exists, to be sure, that global warming is triggering the extreme weather systems that just this year have triggered monstrous tornadoes, torrential rains, record-breaking snowfalls and even months-long droughts. Still, trending data and other signs point to our planet growing warmer as carbon dioxide and other pollutants damage its fragile ecosystem.

Whatever is affecting climate change, however, corporate leaders today can’t look backward any longer to historical records. Companies are now expected to be able to anticipate risks that appear to be happening more frequently and more intensely.  In other words, companies facing such lawsuits aren’t simply measured on whether they had adequate insurance, financial reserves or cash on hand.  Stakeholders will nail them if they knew a risk existed but failed to do the qualitative, values-based analysis that now shapes the corporate character of a company.

Some companies such as Chiquita Brands International and Entergy have been working actively to consider ways to decrease their impacts on climate change.  Chiquita Brands has led through efforts to conserve water and promote biodiversity. It has joined in the Costa Rican National Climate Change Strategy and participates actively in two environmental working groups dealing with climate change and air quality. For a decade, Entergy, the global energy company, has addressed climate change; since 2001, it has decreased carbon dioxide emissions more than 16 percent below its reduction-campaign goal for the period.

What can companies do in light of this emerging new class of climate-change litigation?  Here are some suggestions:

· Ensure you have a climate-action plan in place, or develop one if you don’t, and it should focus on capabilities rather than function.

· Make sure your board of directors is very involved in the climate change issue; it should consider naming a sustainability or social-purpose expert as a director or an advisor; someone who can wed together the organization’s social responsibility, its operating stability and the qualitative risks it has considered.

· Don’t worry solely about risks, but determine what opportunities could develop from putting a climate-action plan in place.

As climate change litigation is developing, force majeure is not the force to be reckoned with any longer. Rather, it has much more to do with the affirmative decisions made before a climate-related event occurs

1. The cases are Connecticut vs. American Electric Power, Kivalina vs. ExxonMobil Corporation, and Comer vs. Murphy Oil.