Helping Cities Manage Climate Change: Smart Surfaces, Credit Ratings and Risk Management
By Greg Kats, Steve Bushnell, Will Wynn and Rob Jarrell
View 3 part article in Risk & Insurance Magazine here, or download the report below.
Climate change is increasing the frequency and severity of extreme and costly weather events such as storms, hurricanes, extreme rains, and heat waves. These are increasing costs and risks to cities, in turn threatening their credit rating and their cost of borrowing money. The U.S. government’s 2018 National Climate Assessment Report recognizes that “Climate change creates new risks and exacerbates existing vulnerabilities in communities across the United States, presenting growing challenges to human health and safety, quality of life, and the rate of economic growth.” Moody’s Investors Service warns that climate change, “will be a growing negative credit factor for issuers without sufficient adaptation and mitigation strategies." These mitigation strategies include what we call smart surfaces – including highly reflective roofs, porous and reflective pavements, roads and parking lots, green roofs, and trees. These strategies can reshape how cities manage rain and sun, greatly reducing costs and risks of excess heat, smog and flooding, and making cities more livable, comfortable, and safe. To date, the potential impact of adopting these strategies on city credit rating has been largely overlooked. Our analysis demonstrates that cities that choose to not adopt smart surfaces will experience significantly increased climate related losses, increased risk of credit rating reductions, and associated increases in city borrowing costs. Over time, these combined threats will increase risk of insolvency for cites that do not adopt resilience strategies such as smart surfaces. This article provides the first rigorous description and quantification of the costs and benefits of city climate change mitigation strategies on their credit risk. This work is part of the Smart Surfaces Coalition, comprised of thirty partners, including the National League of Cities and the American Institute of Architects. This analysis is intended to help cities better understand and more effectively manage and reduce climate risk, and thus help cities remain livable, healthy, and financially viable.