In 2015 we saw the rise of awareness around finding solutions to effectively manage climate change. We know that there are differing opinions for the causes as to what has already occurred but agree that we can find ways to proactively prepare for what is to come. Evidence shows that catastrophic climate events, like hurricanes, flooding, tornadoes, and earthquakes, are becoming more frequent and more disastrous; consequently, leading to a more costly cleanup for those devastated communities. State and local infrastructures are faced with the socioeconomic burden to reconstruct their communities because the process to be eligible for federal aid is uncertain and arduous. Even more, the National Flood Insurance Program is faced with a $23 billion deficit because of previously treacherous storms.

Climate risk mitigation preemptively prepares business owners and community members to better manage the financial distress in the aftermath of a catastrophic climate event; thus, getting them back to operating more quickly. These solutions – Green, Resilience, and Catastrophe Bonds – offer significant benefits to the use of these financial vehicles rather than simply using traditional insurance, reinsurance, and/or relying on FEMA for funding support. For instance, these tools allow issuers to speed up cash flow when a loss event occurs; reduce spending on contingent liabilities, and reduce the downside risk to finances after a loss event. Furthermore, the S&P ratings agency, among other organizations, is starting to evaluate risk mitigation planning efforts for climate events in their overall ratings assessments.

To briefly explain these tools:

Catastrophe bonds are high-yield debt investments sometimes linked to insurance that raise money in the case of a climate catastrophic event. These bonds are established with specific pre-defined terms and conditions about when the bond can be activated for a payout to the issuer. Historically, catastrophe bonds were first created in the mid-1990s in the aftermath of Hurricane Andrew and Northridge Earthquake (Note: Intersect Advisers’ Managing Director, Alan Rubin helped design and underwrite the catastrophic fund for hurricane relief and rebuild of the State of Florida, and he led major reconstruction efforts after Hurricane Andrew).

Similarly, Resilience bonds, a variation of catastrophe bonds, are designed to attract flood-prone cities to develop infrastructure projects, like seawalls and barriers, to alleviate decimating damage to its communities during a catastrophic event. These bonds offer catastrophe insurance during the construction of the new infrastructure project with an investment to reduce economic losses from climate disasters. Think about it as a “resilience rebate.” For instance, city officials and the community members of Hoboken, New Jersey are working to find a resolution about how to fortify its city against future flooding events.

Thirdly, Green bonds are designed to fund projects with the purpose of creating positive environmental and/or climate change.  Although we may previously understand green bonds to be associated with ‘green washing’ effects, recently, experts are working to redefine the standards of green bonds to effectively evaluate the impact of these tools. In some circumstances, issuers face reputational risk when the goals are challenged about the bond’s defined green benefits.

Often times, issuers seek external consultants to review the criteria of the bonds and provide comfort to the issuer that the goals and benefits are validated by experts and meet the standards of ratings agencies. These consultants work to assess current coverage and exposed areas of risk, as well as identify the most important perils. Additionally, they educate and advise the issuers on the best solution(s) for climate risk mitigation planning to ensure a successful action plan is effectively positioned and achieved.

Whether you are a business owner or community member, these are the areas of your environment that you need to assess and evaluate to determine the best climate risk mitigation solution:

• Current insurance coverage
• Building infrastructure codes
• Loans and financial status
• Economic impact
• Floodplains and zoning
• Historical weather-related data
• Ratings benchmarks
• Regulatory standards

Send us an email to set up a meeting to discuss climate risk mitigation solutions.

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Intersect Advisers, LLC (“Intersect”) is a consulting firm that builds the right strategy and relationships to help businesses grow. Intersect has a depth of knowledge and experience in the area of disaster recovery and we are recognized nationally for our expertise in the structure of climate risk mitigation projects; most notable for our consulting on capital market financing in the use of Green, Resilience and Catastrophe (CAT) bonds. Intersect advises and educates public and private organizations on climate risk mitigation planning and post-event financial recovery. For more information about us, please visit http://www.intersectadvisers.com.