This year’s spate of major hurricanes, including Harvey and Irma so far, has brought renewed attention to how cities should respond to a world in which massive storms are getting more powerful. While corporations and governments can cut their greenhouse gas emissions, that’s of no immediate help when a Category 5 storm is bearing down.
That’s why governments and companies are thinking about how they should adjust and react — whether it’s when rebuilding cities like New York or Houston after a storm passes, or preparing ahead of time to lessen the impact of any future storms.
The insurance industry is providing a big push for cities to become more resilient, since climate change is having a direct impact on insurers’ core business. A coalition of nearly 30 of the world’s major insurance companies, called ClimateWise, has said that the industry needs to fund more projects that mitigate the effects of storms, floods and heat waves.
Such efforts may be large-scale or small-scale. One example of the latter would be cutting premiums of policyholders who reduce their risk by investing in self-protection measures. Insurer USAA, for instance, offers premium discounts to homeowners in fire-prone states who take certain measures to protect their houses from wildfires. Another example would be offering premium discounts for hurricane-resistant doors.
Insurers can also encourage local governments to invest in climate-resilient projects through products like catastrophe bonds. Such bonds are growing in popularity because they fill a gap in the market: insurers tend to think in the short-term when assessing property risk, while cities often plan for years or decades when it comes to large capital projects, the Harvard Business Review notes. Cat bonds can help provide cities with long-term protection that they struggle to find from insurance companies. Such bonds have been used to help fund flood walls in Hoboken, NJ and Norfolk, Virginia.
Cities are taking numerous approaches to try to deflect damage from future storms. New York City has developed two flood risk maps – one for current sea levels, one for projected future levels – to help the planning process. And Norfolk, Virginia’s flood walls are part of a long-term vision to look at the city’s entire infrastructure from a climate change perspective.
New Orleans, meanwhile, imported ideas from the Netherlands — a recognized global leader at controlling water — as it rebuilds after Hurricane Katrina. The Crescent City is in the midst of a $3 billion street project, including $1 billion being spent to put huge concrete tunnels under major roads, to collect and remove water during large storm or flood events.
As Houston dries out and starts to rebuild, experts say the city should take numerous steps to help ward off massive flooding in the future. This could be something as straightforward as eliminating minimum parking requirements for new developments — a rule that forces the construction of large surface parking lots, which prevent drainage and enhance flooding — or buying up development rights to help preserve wetlands that can also mitigate floods.
Other ongoing municipal project financing activity includes:
- Washington, D.C. is installing permeable pavement, green roofs and rain gardens to help reduce the polluting effects of storm water runoff. In 2016, Prudential Financial invested $1.7 million towards a new pilot collaboration between The Nature Conservancy and Encourage Capital called District Stormwater LLC (DS) that will develop green infrastructure projects and generate Stormwater Retention Credits (SRCs) under the District’s new Stormwater Credit Trading Program.
- New York’s transit agency, the MTA, issued a $200 million catastrophe bond in 2013 and another $125 million cat bond earlier this year, in part to protect against storm surges like the one that crippled the city’s subway network during Superstorm Sandy in 2012.
- In 2016, Goldman helped develop DC Water and Sewer Authority’s first Environmental Impact Bond (EIB) to fund its DC Clean Rivers Project, a $2.6 billion program to control stormwater runoff and improve the district’s water quality. The $25 million, tax-exempt bond was sold in a private placement to the Goldman Sachs Urban Investment Group and Calvert Foundation in September of that year.
- In 2014, DC Water worked with Goldman Sachs to issue $350 million in taxable green bonds, the first 100-year maturity ‘green century bond, to finance new infrastructure to address combined sewer overflow issues, helping to improve water quality, reduce flood, and restore the District of Columbia’s waterways, it said.
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