Episode Transcript
Speaker 0 00:00:00 Hi everyone, this is Kesa Shrine, and today we're going to talk about the role that sovereign and sub sovereign actors play in building resilience, especially as it relates to climate resilience with the growing frequency of natural disasters and extreme weather events in the US and abroad. The importance of collaboration involving all stakeholders from corporations and investors to cities and sovereign actors is moving to the forefront here to discuss the future of climate resiliency and the role of government and investors is Joyce Coffee, president of Climate Resilience Consulting. Joyce, thank you for joining. Well, thank you so much. It is a huge pleasure to be here. I'm just thrilled about the incredible content that you share with your audiences. Oh, well, thank you so much, Joyce. That's wonderful. And let's just jump right into it. Could you let us know what is the role of governments, of so sovereign actors in terms of climate change, um, and what roles do they play in this resiliency building that we talk about?
Speaker 0 00:01:04 Well, that's just a really important question and sort of my life's work. And I think it's really valuable for us to first start with a bit of level setting about what these governments face. Um, for instance, in the US, disaster costs over the last five years have exceeded 550 billion, and this is a record. Um, and here in 2020, even though we are only in October, there have been 16 weather, or we could call them actually climate disaster events with losses that exceed 1 billion each. And that's also a record, and that's by the way, as of October 7th. So it doesn't include, for instance, the recent, um, tragic fires in Colorado. So there's a lot at stake. Um, a lot is being lost. And just to sort of make that clearer with one example in the particular sector, we know that the economic losses and social disruption of rising seas on, on coastal housing, um, may happen gradually, but this is a quote from Fannie Mae.
Speaker 0 00:02:03 Um, they're likely to be greater in total than those experienced in the housing crisis and great recession. So, you know, some people feel like we may be heading towards the next big short and, um, even BlackRock just to, you know, kind of make this a fine point for the finance sector has said that climate, the CRI climate crisis is reshaping finance and it pre presents, um, one of the highest sustainability related risks and highest risks overall for portfolios. So governments are grappling with that. And just to, you know, um, end here for a moment on what governments do around climate, uh, action, we have to remind ourselves that they set an enforce policy, they provide data and information, and they communicate and pay for stuff, obviously, including extracting taxes and rates, and then using that money for things like infrastructure. Um, and in particular, um, I'll just mention a few quick things that state governments and local governments, so the sub sovereign level do for climate action that influences the private markets.
Speaker 0 00:03:09 Um, number one, states create plans and local governments create plans that assess risks, set priorities, um, engage stakeholders, right? Number two, they create standards, uh, for instance for infrastructure, highways and roads, transit systems, buildings, water systems, all those things that the private markets rely on to, uh, serve customers and provide services. And three, they, uh, create resilience policies for regulated sectors. And this at the state level could be like electric water and waste utilities. So all of our service delivery, the critical infrastructure, um, infrastructure insurance, sorry, real estate finance, all that regulation is I think, um, a, a part of Amelia of what states the role that states play in, um, building the, uh, climate resilience paradigm for, um, for the private sector. Um, and there's a few capacity. So Joyce, I guess share with you Yeah, sure. I, I'm in thinking about that. I'm, I'm thinking there has to be, um, always a level of evolution there to add a bit of, I guess, of a challenge to what you just told us.
Speaker 0 00:04:15 So understanding that the role is to set policy, the role is to provide data and information, but we know that scientific findings are always changing and evolving. Policies around climate change are continuing to evolve. So what role does evolution play here in terms of the work that these government entities are doing? That's a great question. I mean, I think the most impressive evolution is that, um, especially local governments where the rubber really hits the road when these natural disasters strike, um, are evolving because the, uh, the crisis is growing. So they're evolving by having to apply essentially mainstream finance and mainstream funding to new and growing risks. Um, and this is really, I think, impressive from the perspective of government versus the private sector, because cities cannot pick up and leave, they cannot move the chessboard pieces to the less risky place. Um, there really is no outrunning climate change, but in this evolutionary stage, many, uh, private market players are able to move.
Speaker 0 00:05:23 And, um, that's a really, I think, distinct difference between the government and the private sector. But on the other hand, there is an edge of innovation that cities are developing in order to pay for the serious risks that they face now or will in the near future. Um, and I think those sort of, that's a really huge part of that evolution, right? The edge of innovation on the finance side, which we can get into in a moment. But I also wanted to be sure that we acknowledge that another thing that's really key for the evolution of cities is that we crack the code on creating social equity. If we do not the disproportionate impacts of lower resourced Americans, and of course this would be true of anywhere in the world, um, will become even graver. So we owe it to ourselves to ensure that the evolution means that social equity and financial equity create transformed systems, um, in this new era where those communities that are most at risk because of where they are cited, you know, death by zip code or, um, what their health implications are or what their job status is, they're actually, the resilience would define their lives as being improved through government and even private sector actions that help to build climate resilience.
Speaker 0 00:06:42 Wow. So what a great segue. They're talking about cracking the code on social, um, inequalities for lower resource communities who are seeing greater consequences is not really something that we can talk about in future attempts. There. Definitely seeing that, wondering where is the money coming from <laugh>. So if we have all of these priorities and everything sounds to be, um, such a priority, where is the financing coming from? You talk about the innovative financing, let's del more into that. Okay, well, let's just talk first about local government, where the money is coming from for that, because, um, you know, I, I am really focused on that question, and I think many, um, private sector listeners would be reflecting on the fact that generally they do rely upon their, you know, local services. So local government strategies for financing resilience include about six things. One, they're generating local revenue, right?
Speaker 0 00:07:31 This is taxes and rate paying. Um, two, they're imposing land use costs. Um, three, they're embedding resilient standards into future infrastructure investments, right? And this is like the lower hanging fruit of ensuring that procurement policies and engineering standards all assess and then address climate risks. And four, they're leveraging development opportunities. And maybe we can come back to this cuz this is really, I think a portion of how the cl, the private and the public sectors work together around resilience. And five, they're exploiting federal funding niches. Um, so these niches, you know, are, we know fema, you, if you've been in a disaster declared environment, you've heard of FEMA funding. That's the Federal Emergency Management Agency flooding into, um, communities. Um, also funding from, for instance, housing and Urban Development. That's hud um, they do a community development block grant for disaster recovery and for mitigation. So there are flooding niches that are a part of disaster recovery. There are a very small number of funding niches from the feds that also deal with what we would call pre recovery or preparation or resilience, um, that are also in those two departments.
Speaker 1 00:08:47 And let's also dive into leveraging development opportunities. It sounds very interesting. What does that consist of,
Speaker 0 00:08:54 <laugh>? Okay, great. Well, um, there, there are a few things. Um, one is that, um, you know, states and cities can really, um, help with inventories of must do projects. And those projects are in fact really where development money, uh, could make a buck. Um, because often they have a great, you know, credit rating associated with them, or, um, they already have the first flush of risk taken away by, um, some government, uh, mechanism. Um, so I think the, the, you know, we have to remind ourselves of, um, the sort of private investment leveraging mechanisms that come with these development opportunities. So governments, for instance, can set up incentives, um, standards and regulations and even targeted sectors that they say, Hey, we really think that this sector is crucial for our government, um, providing critical infrastructure and, um, you know, ensuring that we don't have failure in the systems that our citizens, you know, our, our rate payers, our taxpayers and our voters rely on.
Speaker 0 00:10:05 Um, and by the way, just, you know, to be sort of upfront about those targeted sectors, we might get into this in a moment about like where are the opportunities, but I mean sectors including real estate, which faces some of the gravest risks, um, in the climate change future. Um, and I mean for sure, um, engineering and construction, which has grown exponentially with those billion dollar weather events I mentioned at the start of our conversation, and I also mean the financial services industry. I mean insurance, um, is a sector, for instance, in California, they have a new climate smart insurance products database, right? There's, there's chances for innovation for those who serve government just as there are chances for innovation within government. So we talk a lot about government here, which is great. We have a clear understanding of that aspect. But let's talk about the opportunities for investors.
Speaker 0 00:10:57 What should their perspectives be? What should they be thinking about? Yeah, well, I think there are a few things. Number one, um, investors, um, who are already savvy enough to be listening to your podcast, <laugh> have likely heard about the task force on climate related financial disclosure. Shorthand T C F D. Um, T C F D had about three years ago set forth guidelines for, uh, how investment community leaders should be grappling with climate risks. And those guidelines, um, were new in several ways, um, but the most, I think important for our conversation today is that the guidelines spelled out that investors should be assessing the physical impacts from climate change on their portfolios. In the past, in the last decade, we've seen investors really focus in on the potential risk of, for instance, a carbon tax or cap and trade. And then they've also focused in on the potential risk that they might, um, as consumers transition away from these, um, fossil fuel industry, for instance, they might have stranded assets in their portfolios, but this was new because the guidelines are actually saying you need to understand the, both the physical acute risks and the physical chronic risks that your, uh, portfolio's face.
Speaker 0 00:12:12 And then also, of course, you need to understand what the opportunities are that those risks, um, provide. Because as I mentioned before, I mean in investment community especially, you can move your chest port around. And so I think, you know, this is really a chance now for us to think about how that risk assessment, which is the first principle really of any leader in any sector, you have to assess your risks according to the boundaries and interdependencies of whatever asset is you hold in your portfolio or you, um, actually, you know, maintain in your, let's say in the this case of, you know, your headquarters or your supply chain. And then once you assess them, you have to address those risks, right? Um, and that, you know, there's a whole bunch of risk reduction measures that can be taken. Each one of them, of course is a business sector that can grow.
Speaker 0 00:12:59 Um, so maybe it would be worth me spelling out just a few of those sector opportunities. Would that be of interest to your listeners? Uh, the sector opportunities and as well as diving into the risk assessment? I'm looking for the top three or top five. If I'm an investor, how do I go about doing that? Okay, great, great. Well, I think the first thing about risk assessment is, um, understanding what the hazards are we're talking about here, right? Um, we're talking about flooding, and that's coastal flooding, storm surge related, that's river flooding, which actually takes more properties, um, and causes more, um, uh, distress than coastal flooding does, even though it's not, doesn't have the same sex appeal and doesn't make it in the headlines quite as often. So those two types of flooding as well as, um, heat, extreme heat is actually the biggest killer, um, in the climate change milia and, um, you know, will have a growing impact.
Speaker 0 00:13:53 So there's, um, I think those are the things that you have to assess as your hazards, right? More rain or more precipitation when you don't need it, less when you do the drought questions there too. And then two is heat, um, and, you know, all the, the knock on effects of all of those things, wildfire is part of that obviously. Um, so is a change in, you know, uh, where ecosystems are allowing for certain crops to be growing. So the agricultural sector is another really big one for opportunity, um, as well as risk in this case. So knowing what your risks are, and then number two, I mentioned earlier the question of boundaries and interdependency. So you, the, one of the reasons why cities are really crucial for this is that they provide data and information, and if you have assets, that information needs to be very granular.
Speaker 0 00:14:39 It needs to be at the scale of like a block or even a property index number, right? So knowing what the boundary is for your risk is I think really important. And then three, and this is where it gets a little stickier, because those first two things I said, any risk assessment, you know, manager in, uh, the C-suite worth their salt is already doing that, right? They, they're identifying what the risks are and then what the, the boundaries are for those risks within their portfolio. But the third thing I think is really hard, and that is that climate change is all about predictions and scenarios. So it's a little bit like cyber risk in that regard. Um, and those predictions and scenarios really emerge out of like what pathway we are on for greenhouse gas emissions. So already climate change is baked into our systems, so we can already say, well, we're gonna use the scenario that has temperatures increasing, um, you know, by two degrees Celsius.
Speaker 0 00:15:37 But then beyond that, if you have an asset that you're holding for 10, 20, 30, or in the case of infrastructure like a hundred years mm-hmm. <affirmative>, even though it might not be in your portfolio for that long, it's been used for that long, you need to be asking like, wow, what if we go to FI four degree Celsius? What does that mean? Yes. Yeah, that's big stuff. Tough this, and this is all, this is all big stuff and all very useful information. So first of all, climate change is reshaping finance, and that's just, um, where things are there in terms of crises. They're growing and governments really are positioned to provide mainstream financing to meet these crises and these risks. Um, where does the money come from? The government money come from regarding climate finance, local revenues such as taxes, land use costs, as well as leveraging development opportunities.
Speaker 0 00:16:26 And federal funding like FEMA and HUD are great places to look at in terms of where the money comes from. In addition, what are some of the things that investors should really think about? Joyce, you're saying that is assessing the physical risk of climate change. That means acute and chronic risks and really assess where the opportunities are. So opportunities can be understanding, first of all, what are the hazards, what are the sectors? We talked about flooding and extreme heat being some hazards and really understanding the knock on effects and what sectors are impacted by that agriculture sector being one, knowing risk boundaries, very important for institutional investors, and also being ready to make predictions and understand scenarios. Joyce Coffee, president of Climate Resilience Consulting, thank you so much for joining us. Thank you so much. That was brilliant. Take care.
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