# How Climate Risk Flows From Insurance to City Budgets

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 11 Feb 2026, 31 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/09d73f9b-033d-4c2e-8e2f-b3ee00816e36/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

Climate adaptation is increasingly a matter of financial resilience, not just physical protection. Across the US, climate risk is filtering into rising insurance costs, shifting property values and heavy reliance on property tax revenues, exposing some cities and counties to mounting fiscal strain and potential spillovers into municipal bond markets. With climate exposure, tax dependence and access to federal aid varying sharply by location, risks are emerging unevenly across the country. So how are climate stresses reshaping municipal finances, and what should investors and policymakers be watching? On today’s show, Tom Rowands-Rees is joined by Danya Liu, a BNEF specialist in climate resilience and adaptation, to discuss findings from her note “Climate Risk and US Municipal Finances: Storm Ahead.” Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: Climate Risk and US Municipal Finances: Storm Ahead? - https://www.bnef.com/insights/38257 See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Tom Rowlan's Reese, and you're listening to Switched
[0:03] Speaker 1: on the podcast brought to you by Bloomberg NIF. Climate
[0:06] Speaker 1: adaptation is no longer just about protecting assets. It's become
[0:09] Speaker 1: a question of financial resilience. Rising insurance costs, shifting property values,
[0:14] Speaker 1: and the growing impact of extreme weather are increasingly flowing
[0:17] Speaker 1: through to city and county balance sheets, with knock on
[0:19] Speaker 1: effects from municipal bond markets. Across the US, climate risk
[0:24] Speaker 1: is already reshaping local finances. Counties with high exposure are
[0:28] Speaker 1: seeing insurance premiums rise, property markets soften, and tax revenues
[0:32] Speaker 1: come under pressure, particularly in regions heavily reliant on real
[0:35] Speaker 1: estate for funding. At the same time, differences in climate
[0:38] Speaker 1: exposure are beginning to show up in municipal credit profiles,
[0:41] Speaker 1: creating clear winners and losers. So how are climate risks
[0:44] Speaker 1: filtering into public finances and what does this mean for
[0:47] Speaker 1: investors watching the municipal market. On today's show, I'm joined
[0:50] Speaker 1: by Daniel u, a specialist in climate resilience and adaptation
[0:54] Speaker 1: here at BNEF, to discuss her note climate risk in
[0:57] Speaker 1: US municipal finances. Storm Ahead NIF clients can find this
[1:01] Speaker 1: note along with other related research by heading to BNIF
[1:04] Speaker 1: go on the Bloomberg terminal or BNIF dot com. If
[1:07] Speaker 1: you'd like to learn more about how BNIF approaches strategy
[1:10] Speaker 1: research on the energy transition, including developments in commodity markets,
[1:14] Speaker 1: trends across different sectors, and the cross cutting technologies shaping
[1:17] Speaker 1: the future, you can find more information on BNIF dot com.
[1:20] Speaker 1: And if you'd like to speak with a member of
[1:22] Speaker 1: our team about becoming your client, email us at sales
[1:24] Speaker 1: dot BNF at Bloomberg dot net. And with that, let's
[1:27] Speaker 1: take a closer look at what this means for cities,
[1:30] Speaker 1: counties and investors. Hi, Danielle, Welcome to the show.
[1:43] Speaker 2: Hey Tom.
[1:43] Speaker 1: Thanks so those of you who are subscribers to bn
[1:49] Speaker 1: EF will have access to a note that daniel published recently,
[1:52] Speaker 1: and it has the most beautiful colored maps out of
[1:58] Speaker 1: any I can ever remember us wishing at BNF and
[2:00] Speaker 1: we love at BNF a beautifully colored map. We nerd
[2:03] Speaker 1: out for that sort of thing. I'm telling you all
[2:05] Speaker 1: this because I know that some of the people on
[2:07] Speaker 1: the call are not be ANYF subscribers, so you just
[2:10] Speaker 1: have to trust me when I tell you that Dania
[2:12] Speaker 1: produced these absolutely beautiful maps, And I suppose my first
[2:15] Speaker 1: opening question is just broadly, what are these maps trying
[2:19] Speaker 1: to show? Thanks?
[2:22] Speaker 2: What a compliment although this is a this is an
[2:24] Speaker 2: audio forum.
[2:26] Speaker 1: Yeah, I know. That's that's why I you know, I'm
[2:28] Speaker 1: in in a way. We're trying to generate business here
[2:30] Speaker 1: because some people will have heard about the maps and
[2:32] Speaker 1: they will be getting in touch with our sales team
[2:34] Speaker 1: because they'll want to see them too.
[2:36] Speaker 2: Yeah, go look at the maps. They really are beautiful.
[2:40] Speaker 2: The maps show the propagation of climate risk into fiscal
[2:45] Speaker 2: risk in very real terms. What we did is used
[2:50] Speaker 2: these different beautiful colors to show how each and every
[2:55] Speaker 2: single county in the US is experiencing climate risk that
[3:00] Speaker 2: then pushes up insurance prices, which then pushes down property values,
[3:06] Speaker 2: which then endangers local government fiscal revenue because as you know,
[3:14] Speaker 2: many many county governments really depend on property tax revenue.
[3:18] Speaker 2: So we use these maps to just show how precarious
[3:21] Speaker 2: each county is to this chain of events that directly
[3:25] Speaker 2: links climate risk to fiscal risk and eventually to MEUNI
[3:29] Speaker 2: bond markets, which are a huge, huge outs of the class,
[3:31] Speaker 2: not just in the US but globally, so.
[3:34] Speaker 1: They're really Dania's technicolor maps of doom in a way,
[3:38] Speaker 1: they're not representing, you know, who's going to get most
[3:42] Speaker 1: candy next year, They're they're really highlighting real world risk.
[3:45] Speaker 1: So you kind of have described an entire domino effect
[3:50] Speaker 1: of consequences, as you say, of climate risks translating into
[3:54] Speaker 1: fiscal impacts. So let's start. I believe at the beginning
[4:00] Speaker 1: of that domino tabe well the end, I didn't know
[4:01] Speaker 1: which way around it is. It's all instantly. But let's
[4:03] Speaker 1: start talking about property tax. Obviously, property tax is something
[4:07] Speaker 1: that affects us. All we'll pay it. But you've been
[4:10] Speaker 1: diving in a little bit deeper. So explain to us
[4:12] Speaker 1: why that is significant in this whole equation you've just described.
[4:17] Speaker 2: Yet for me, the property tax map is our last domino,
[4:23] Speaker 2: and that it really brings this whole storyline together. I
[4:26] Speaker 2: didn't know how critical property taxes were to local governments.
[4:31] Speaker 2: Maybe I was naive, but I pulled up the raw
[4:36] Speaker 2: data set from the Census of Governments and I ran
[4:39] Speaker 2: it through script and found that there's actually a significant
[4:44] Speaker 2: number of counties, especially in this middle band up and
[4:48] Speaker 2: down the middle of the country, that takes seventy five
[4:51] Speaker 2: percent or more of their annual general revenue from property
[4:55] Speaker 2: taxes alone, which is huge. I mean, imagine something that
[5:00] Speaker 2: comes in and deprecates property values, even a tiny bit
[5:06] Speaker 2: property tax revenue. Then is how that tiny deprecation in
[5:10] Speaker 2: property values then reverberates on local government balance sheets?
[5:16] Speaker 1: And so what we're saying is if anything, and we're
[5:19] Speaker 1: going to talk about what anything could be negatively impacts
[5:22] Speaker 1: property values in certain counties that are very dependent on
[5:26] Speaker 1: this revenue, suddenly that means things like local services aren't
[5:29] Speaker 1: getting funded, schools aren't getting properly funded, and it seems
[5:32] Speaker 1: like you're maybe on a slippery slope at that point,
[5:36] Speaker 1: because I can't imagine people exactly being excited about buying
[5:40] Speaker 1: property in a county that's going through that sort of process,
[5:44] Speaker 1: which I also imagine doesn't help property values and therefore
[5:48] Speaker 1: the tax revenue either. Is that a fair characterization of
[5:51] Speaker 1: what this means when this happens.
[5:53] Speaker 2: Yeah, that's really fair. I mean, once you have something
[5:57] Speaker 2: endangering local government fiscal stability, then the repercussions from there
[6:02] Speaker 2: become very very clear. Like I said, municipal debt from
[6:06] Speaker 2: those governments, from those issuers could be called into question.
[6:11] Speaker 2: You mentioned local public services could be called into question.
[6:15] Speaker 2: I have a selfish view on this because my coverage
[6:18] Speaker 2: at BNF is climate adaptation and resilience, which is mainly
[6:23] Speaker 2: going to be funded by probably smaller local governments initially,
[6:27] Speaker 2: and you can imagine that if their top line revenue
[6:31] Speaker 2: is endangered, then probably climate adaptation, these long term, big
[6:36] Speaker 2: infrastructure public good projects are probably one of the earliest
[6:40] Speaker 2: or easiest to be on the chopping block. And if
[6:43] Speaker 2: that happens, that really feeds into the beginning of this
[6:46] Speaker 2: climate fiscal recycle, which is the dangerous part. If governments
[6:51] Speaker 2: are having their budget squeezed and their climate adaptation plans
[6:55] Speaker 2: then get chopped, then that makes this climate fiscal risk
[6:59] Speaker 2: pathway even stronger. It's a positive feedback loop, a dangerous one.
[7:03] Speaker 2: We found that close to four hundred counties across the
[7:06] Speaker 2: US take seventy five percent or more of their general
[7:11] Speaker 2: annual revenue from property taxes alone. So you can imagine
[7:14] Speaker 2: that if that is endangered in any way, there's no
[7:17] Speaker 2: other viable source to make up seventy five percent or
[7:20] Speaker 2: more of your revenue.
[7:22] Speaker 1: I mean, and I saw that that number in the notes,
[7:25] Speaker 1: and so I just put in context for those of
[7:27] Speaker 1: you not familiar with the US, the US has just
[7:30] Speaker 1: over three thousand counties, so if we're talking around four
[7:33] Speaker 1: hundred counties, it's more than ten percent of counties. So
[7:38] Speaker 1: this collectively, if this is you know, the final domino
[7:41] Speaker 1: you're saying, is the falling property values to fall in
[7:45] Speaker 1: in county revenues. This is kind of like one of
[7:48] Speaker 1: the first really tangible effects. If people are in denial
[7:52] Speaker 1: about the weather and as they know, it's it's all
[7:54] Speaker 1: made up, this climate change stuff, then something that is
[7:58] Speaker 1: very tangible is these potent Actually, you know, if there's
[8:01] Speaker 1: a massive county level bankruptcies, I suppose is where this heads.
[8:05] Speaker 1: I know you say it's a final domino, but maybe
[8:07] Speaker 1: it's a final domino in the first really big financial
[8:11] Speaker 1: impact of climate change.
[8:13] Speaker 2: Yeah, I think it's the final domino in this pathway,
[8:18] Speaker 2: but it's in a way the first domino in a
[8:21] Speaker 2: series of other pathways. Like you say, it could lead
[8:24] Speaker 2: to local bankruptcies in a worst case scenario, but before then,
[8:29] Speaker 2: it could in a very real way affect the performance,
[8:33] Speaker 2: the stability, the investor perception of MUNI bonds from these regions,
[8:38] Speaker 2: so that, yeah, there's a lot.
[8:40] Speaker 1: To care about on the pathway to the worst case scenario,
[8:43] Speaker 1: even if the worst case scenario can be averted. So
[8:46] Speaker 1: let's get into a little bit more about the different
[8:49] Speaker 1: factors that can combine to impact property values in this way.
[8:54] Speaker 1: I mean, at firstly, how does climate risk translate into
[9:00] Speaker 1: the housing market.
[9:02] Speaker 2: There's a couple of ways. There's an acute way, which
[9:06] Speaker 2: I think is pretty easy to imagine. Right, a natural
[9:08] Speaker 2: hazard comes in and tears through the town and in
[9:12] Speaker 2: one go rex property values across the board because the
[9:15] Speaker 2: buildings just simply aren't there anymore catastrophic losses. Yeah, so
[9:21] Speaker 2: that's an acute pathway. But what we did in this
[9:23] Speaker 2: note is focused on a chronic pathway that in some
[9:27] Speaker 2: ways is more pernicious because it can happen anywhere, and
[9:31] Speaker 2: it is happening everywhere, and because it's chronic and maybe incremental,
[9:36] Speaker 2: it's not flashy, even though it is very dangerous. And
[9:39] Speaker 2: so this chronic pathway is climate risks, natural hazards accumulating
[9:44] Speaker 2: creating a lot of losses. Insurance providers are one of
[9:48] Speaker 2: the earliest and probably one of the best at pricing
[9:51] Speaker 2: in climate risks. To their financial instruments. Right now, there's
[9:54] Speaker 2: a lot of talk about, you know, private insurers pulling
[9:57] Speaker 2: out of these very risky regions altogether, like you here
[10:02] Speaker 2: in Florida and parts of California, because they just can't
[10:05] Speaker 2: bear the cost of the natural hazard downside anymore. So
[10:08] Speaker 2: these climate risks are being priced in to insurance premiums.
[10:12] Speaker 2: As your homeowner's insurance gets more and more expensive. That
[10:16] Speaker 2: obviously has an effect on the performance of the local
[10:20] Speaker 2: housing market, the local real estate market. And that's a
[10:23] Speaker 2: known correlation between insurance prices and housing values. As insurance
[10:27] Speaker 2: goes up, housing values tend to go down. And so
[10:31] Speaker 2: that's a chronic pathway that is. It is happening. It's
[10:34] Speaker 2: not flashy, but it is, like I say, dangerous.
[10:37] Speaker 1: I mean, I don't know why we would expect it
[10:39] Speaker 1: to be flashy. Where we were looking about this sort
[10:43] Speaker 1: of doom and doom. Here we expect it to be uh.
[10:46] Speaker 1: I know what you say, the mundanity of evil. I mean,
[10:49] Speaker 1: it's it's wrong to call just the physical environment doing
[10:53] Speaker 1: what it does evil, but the mundanity of destruction.
[10:56] Speaker 2: I suppose I like the mundanity of evil, and you've
[11:00] Speaker 2: called me the purveyor of gloom already. I like these terms.
[11:04] Speaker 1: I mean, Danielle, you are you know, maybe we need
[11:06] Speaker 1: this someone who's keeping it real with us. And I
[11:09] Speaker 1: honestly I've read your note and I've thought very hard.
[11:12] Speaker 1: If I do decide to settle in the US, where
[11:14] Speaker 1: I'm likely to invest in.
[11:16] Speaker 2: Property, I know, maybe we have a lot of listeners
[11:19] Speaker 2: with high risk appetites.
[11:20] Speaker 1: Oh yeah, so how I mean, well, we can get
[11:24] Speaker 1: into that. Where are the places that are risky? Then
[11:27] Speaker 1: the property market doesn't seem to be impacted. We'll get
[11:29] Speaker 1: to that. But I feel like there's a question that
[11:30] Speaker 1: I should ask before that, which is, you know, are
[11:33] Speaker 1: we seeing you mentioned you're seeing insurance premiums being impacted?
[11:36] Speaker 1: So are we seeing like a divergence between markets that are,
[11:41] Speaker 1: due to their location high risk from a physical climate
[11:44] Speaker 1: risk point of view and markets that are not? Are
[11:47] Speaker 1: we seeing a divergence in the housing markets?
[11:50] Speaker 2: I think so based on the data that we analyze.
[11:52] Speaker 2: So one of those colorful charts that you mentioned at
[11:55] Speaker 2: the beginning is our insurance map. So our insurance map
[11:59] Speaker 2: categorized is each county in the US into one of
[12:02] Speaker 2: four buckets high or low climate risk and then rising
[12:07] Speaker 2: or decreasing insurance premiums over the past couple of years,
[12:10] Speaker 2: the vast, vast majority of counties fall into the high
[12:14] Speaker 2: climate risk increasing insurance premiums bucket. On property values, we
[12:20] Speaker 2: did a similar analysis categorized counties into how quickly their
[12:27] Speaker 2: property values are increasing or decreasing so hotter cold property markets,
[12:33] Speaker 2: and then on a different access looked at higher low
[12:36] Speaker 2: climate risk. So among hot property markets in the US,
[12:40] Speaker 2: those that are growing very very quickly relative to their
[12:44] Speaker 2: statewide average. Among those hot property markets, three out of
[12:48] Speaker 2: four are located in low climate risk zones, which tells
[12:52] Speaker 2: us that, yeah, home buyers are already factoring in climate
[12:56] Speaker 2: to some extent into their buying and decisions.
[13:01] Speaker 1: So when you say growing property market, you mean where
[13:04] Speaker 1: property prices are going up more than say, the less
[13:08] Speaker 1: hot markets. That's what you mean by that.
[13:10] Speaker 2: Yes, hot markets are counties where the local property prices
[13:16] Speaker 2: have grown at least fifty percent faster than the statewide average.
[13:20] Speaker 1: So is there anywhere where you find the hottest property
[13:23] Speaker 1: markets also have lower climate risk? And I'm presuming the
[13:27] Speaker 1: inverse is true, that you'll find a higher climate risk
[13:30] Speaker 1: with some of the cooler property markets are the only
[13:32] Speaker 1: exceptions to that rule that are notable.
[13:35] Speaker 2: We found some clusters of low climate risk, fast growing
[13:40] Speaker 2: housing markets in the Pacific Northwest and in the Upper Midwest.
[13:45] Speaker 2: If you consult the map, you see some of this
[13:48] Speaker 2: around Michigan, around Colorado.
[13:51] Speaker 1: All right, so those markets are in a good place
[13:56] Speaker 1: relatively speaking, but there are I mean, I think I
[13:59] Speaker 1: remember that there were. There is also some some markets
[14:02] Speaker 1: that are hot but are higher risk from a climate perspective.
[14:06] Speaker 1: So how can that happen?
[14:07] Speaker 2: Yeah, there's obviously many, many, many other factors at play
[14:13] Speaker 2: that affect property markets, not just climate risk. Climate risk
[14:18] Speaker 2: maybe is a growing small one, but you know there's
[14:22] Speaker 2: everything from the local economy to the views and you
[14:27] Speaker 2: know the weather, how close yard to work. So yes,
[14:31] Speaker 2: there certainly are markets that are still very fast growing
[14:34] Speaker 2: but are in very very climate risky zones. And you've
[14:39] Speaker 2: probably seen a lot of these articles about beachfront properties
[14:42] Speaker 2: in the southeast that keep going up even though you know,
[14:46] Speaker 2: we're dealing with more storms, more hurricanes, maybe some sea
[14:49] Speaker 2: level rise that is putting the value of these properties
[14:51] Speaker 2: at risk.
[14:53] Speaker 1: So for now it might not be showing up in
[14:55] Speaker 1: the property market. Assuming that climate change continue us to
[15:01] Speaker 1: create unstable weather and climate risk in those regions. At
[15:05] Speaker 1: some point you would see the climate risk playing more
[15:07] Speaker 1: of a factor than it does currently.
[15:09] Speaker 2: You would be Yeah, you would think that's still to
[15:13] Speaker 2: be seen.
[15:14] Speaker 1: I think so in a way, what your your research
[15:18] Speaker 1: on this area is captured is the kind of the
[15:20] Speaker 1: beginning of what might be a broader trend. You know,
[15:23] Speaker 1: you're seeing a bit of a correlation here between climate
[15:26] Speaker 1: risk and the property market. It's not universal.
[15:29] Speaker 2: Yet, yes, I think that's right.
[15:32] Speaker 1: So when property values weaken, you know, how does it
[15:36] Speaker 1: impact you know, the broader financial systems. I mean, we
[15:39] Speaker 1: talked about property tax, you know, I imagine there's broader
[15:42] Speaker 1: ramifications than just the property tax and the local government revenue.
[15:46] Speaker 2: Yeah. I mean there's a reason why housing markets are
[15:49] Speaker 2: always in the news, right. They underpin so much economic
[15:52] Speaker 2: activity and financial systems. I mean, you think about the
[15:56] Speaker 2: mortgage books that are tied to these, and how mortgages
[15:59] Speaker 2: and being repackaged and traded. You think about how important
[16:03] Speaker 2: housing affordability is to a number of economic indicators. Anything
[16:08] Speaker 2: that affects the housing market, I think is of generally
[16:11] Speaker 2: great concern to many many economists and financial analysts.
[16:15] Speaker 1: So there's a real vulnerability here, you know, not just
[16:18] Speaker 1: in impacting local governments and property taxes, but maybe the
[16:21] Speaker 1: broader investability of certain areas. So we talked a little
[16:25] Speaker 1: bit about the regions that are maybe less exposed, and
[16:29] Speaker 1: we're seeing the hotter property market which parts of the
[16:33] Speaker 1: US would you say is most exposed. But both because
[16:36] Speaker 1: of the kind of the climate risk, but also, you know,
[16:38] Speaker 1: we were talking about a big part of this is
[16:41] Speaker 1: how much of local government revenue comes from property taxes.
[16:45] Speaker 1: That's the kind of where the combination leads to most vulnerability.
[16:48] Speaker 1: Where are you seeing that.
[16:50] Speaker 2: Yeah, on the property tax specifically, it's this north south
[16:55] Speaker 2: band running up and down the middle of the US
[16:57] Speaker 2: that is most vulnerable because those ties tend to depend
[17:01] Speaker 2: most on property tax for a majority of their revenue.
[17:05] Speaker 1: But we did.
[17:06] Speaker 2: Compile a an aggregate analysis of all of these risk factors,
[17:11] Speaker 2: all of these dominoes, if you will. We looked at
[17:14] Speaker 2: each county's vulnerability not just to climate risks outright, but
[17:19] Speaker 2: climate risk as it relates to insurance prices, like we said,
[17:23] Speaker 2: housing markets, like we said, property taxes, and dependency on
[17:28] Speaker 2: federal disaster aid as well.
[17:30] Speaker 1: So in a way, you're looking at where the dominoes
[17:33] Speaker 1: are most unstable, you know, not just where the first
[17:36] Speaker 1: domino is, like it's a fall, if the first domino
[17:38] Speaker 1: is climate event, and you're looking at where those dominoes
[17:41] Speaker 1: are least resilient. If that's a good metaphor let's just
[17:46] Speaker 1: run with it. Yeah, less regilliant dominoes, and so where
[17:50] Speaker 1: stands out. You know, when you think of all of this.
[17:53] Speaker 2: In our composite analysis, the first thing that you'll notice
[17:56] Speaker 2: when you open this map is this is the true
[17:58] Speaker 2: technic color map. There's no broad general trend really, and
[18:03] Speaker 2: that was interesting because that highlighted to us that there's
[18:06] Speaker 2: a lot more factors at play. And that's why hyperlocal
[18:11] Speaker 2: analysis is so so key, because you get this patchwork
[18:15] Speaker 2: of relatively safe, relatively stable counties right next to a
[18:20] Speaker 2: cluster of more risky ones. So that's the first thing.
[18:22] Speaker 1: It's interesting. So we can't make you know, broad sweeping
[18:25] Speaker 1: statements really that when you consider all the factors that
[18:28] Speaker 1: make particular areas risky from the fiscal impacts, when you
[18:32] Speaker 1: consider everything, you can't just say, oh, yeah it's the Northwest,
[18:35] Speaker 1: or oh it's Texas. It's more like you have to
[18:38] Speaker 1: look at every single county as an individual entity. Yeah.
[18:42] Speaker 2: On our composite map, that's absolutely true. It is a mosaic.
[18:47] Speaker 2: You can kind of make out general patterns, so you'll
[18:50] Speaker 2: see that there's more red in the south and red
[18:53] Speaker 2: in our coloring. There was high risk across all of
[18:57] Speaker 2: those dominoes as well as low climate resilience, and then
[19:02] Speaker 2: one region of green green being low aggregate risk and
[19:08] Speaker 2: high resilience start to cluster around Michigan, Ohio, parts of Pennsylvania,
[19:14] Speaker 2: parts of New York, so Ross Belt in general.
[19:17] Speaker 1: I mean Detroit for the whin. You know, if we're
[19:20] Speaker 1: talking about a city that's had to endure that fiscal
[19:24] Speaker 1: slippery slope, it's good to know that Michigan is maybe
[19:29] Speaker 1: on the right end of this particular equation. I'm curious
[19:32] Speaker 1: to know, do you see a big difference between urban
[19:34] Speaker 1: and rural counties in terms of the composite risk.
[19:39] Speaker 2: In a couple of the underlying data sets that we use,
[19:42] Speaker 2: you can see an urban rural divide. So, for instance,
[19:47] Speaker 2: urban counties more metropolitan counties, they tend to have more
[19:50] Speaker 2: diverse economies and therefore more revenue streams coming in, so
[19:54] Speaker 2: they tend to be less dependent on property tax alone,
[19:57] Speaker 2: and the opposite is often true for rural counties also
[20:02] Speaker 2: when you look at the underlying climate risk layer alone.
[20:07] Speaker 2: The data set that we use came directly from FEMA,
[20:10] Speaker 2: the Federal Emergency Management Agency, and their data set quantifies
[20:16] Speaker 2: natural hazard risk via expected dollar losses, So you can
[20:21] Speaker 2: you can see how that shows up differently in urban
[20:24] Speaker 2: and rural counties. Urban counties tend to be show a
[20:27] Speaker 2: little bit higher because you know, they tend to have
[20:30] Speaker 2: denser infrastructure, denser population. Well, rural counties typically are a
[20:34] Speaker 2: little bit lower expected loss due to sparser density.
[20:39] Speaker 1: You know, I know have been jokingly saying you've created
[20:42] Speaker 1: the you know, the technical and map of doom, but
[20:45] Speaker 1: you know, jops aside, the research you've done really highlights,
[20:49] Speaker 1: as we say, a kind of a domino of effects
[20:54] Speaker 1: where climate impacts the world of financing government in a
[20:59] Speaker 1: way that could have very serious consequences. So apart from
[21:03] Speaker 1: you know, making personal investments in the places on the
[21:07] Speaker 1: map that you rate as being relative safe havens, I mean,
[21:11] Speaker 1: what would your recommendation be on how to address this
[21:17] Speaker 1: this potential domino effect that is waiting to happen. What
[21:21] Speaker 1: actually and is this something for the federal government to
[21:23] Speaker 1: be addressing. If you can see that ever happening, some
[21:26] Speaker 1: state government should be thinking about. Is it something that
[21:29] Speaker 1: local jurisdictions can be taking action on? Insurance companies? Should
[21:34] Speaker 1: they be doing something different? Do you have any view
[21:37] Speaker 1: on what can be done other than, you know, personally
[21:41] Speaker 1: trying to avoid putting one's investments at risk.
[21:44] Speaker 2: Yeah, it's a big question.
[21:46] Speaker 1: Yeah, I mean, I don't want to put you on
[21:47] Speaker 1: the spot. You know how to know it's okay.
[21:50] Speaker 2: I think it's a small.
[21:51] Speaker 1: Climate change when you can't solve climate change. I suppose
[21:54] Speaker 1: that is the question.
[21:56] Speaker 2: I think through this research we wrive ABT two takeaways.
[22:02] Speaker 2: At least I arrived at two takeaways. One that is
[22:05] Speaker 2: more physical, so physical climate adaptation, physical climate resilience, whether
[22:10] Speaker 2: it be in the form of a seawall or a
[22:14] Speaker 2: better drainage system, or protecting and restoring wet lens. Those
[22:19] Speaker 2: resilience services really do have an economic benefit. Just thinking
[22:25] Speaker 2: about this pathway that we've outlined. If you have any
[22:28] Speaker 2: of those wet lens or drainage systems or seawalls protecting
[22:31] Speaker 2: your region, then you're dampening the wobbliness of your domino system.
[22:37] Speaker 2: You're protecting more properties from flood or from wildfire or
[22:42] Speaker 2: whatever it may be, and therefore you're not triggering the
[22:45] Speaker 2: downstream effects of destabilized government income, destabilized financial system, broken
[22:53] Speaker 2: mortgage books, what have you. So's that's one thing is
[22:56] Speaker 2: we can be investing more in climate adaptation and resilience,
[23:00] Speaker 2: and we should be seeing it as an investment in
[23:03] Speaker 2: economic protection. The other takeaway is more I suppose for
[23:09] Speaker 2: the analysts, and it is to make the case that
[23:12] Speaker 2: these pathways are real and they're entrenching, and they're acting everywhere.
[23:17] Speaker 2: I mean I mentioned that we looked at this pathway
[23:20] Speaker 2: because it is chronic and it happens everywhere. It doesn't
[23:24] Speaker 2: need to wait for a storm or a fire to act.
[23:27] Speaker 2: It just acts on its own.
[23:30] Speaker 1: Even the potential for climate disaster is a disaster in
[23:35] Speaker 1: a way.
[23:35] Speaker 2: That's right. And so the takeaway is that climate risks
[23:41] Speaker 2: need to be taken more seriously in all types of
[23:44] Speaker 2: investment analyses, not just for the meuni markets, as we've
[23:47] Speaker 2: pointed out here, but really, like we said, for mortgage books,
[23:50] Speaker 2: for local banks, for local governments, and we need to
[23:53] Speaker 2: do better about illuminating these pathways and making the direct
[23:58] Speaker 2: link between climate risks and fiscal outcome very very clear,
[24:03] Speaker 2: so that that analysis can become better.
[24:05] Speaker 1: It's so interesting, and I know this wasn't necessarily in
[24:08] Speaker 1: the scope of the piece of research you've done, but
[24:10] Speaker 1: you may have a view it and it really relates
[24:12] Speaker 1: to the first of those questions. These investments in adaptation.
[24:16] Speaker 1: I can see how you can make the case that
[24:18] Speaker 1: they make sense, but it's I imagine that when you're
[24:22] Speaker 1: trying to make the investment case, and this is a
[24:24] Speaker 1: big investments of money of maybe not particularly wealthy counties,
[24:29] Speaker 1: and it might be invest in this versus some other
[24:32] Speaker 1: piece of infrastructure whose benefit is much easier to quantify
[24:36] Speaker 1: because you know you're building a I don't know, a
[24:39] Speaker 1: new bridge, well, lots of bridges have been built, and
[24:42] Speaker 1: is a kind of a well established way of measuring
[24:45] Speaker 1: the benefit of that bridge, whereas a sea wall or
[24:49] Speaker 1: something like that. The benefit when I mean, how do
[24:51] Speaker 1: you quantify that You're quantifying against what might happen. And
[24:54] Speaker 1: because we're at the really an early stage in the
[24:56] Speaker 1: sort of climate change journey, I imagine it's difficult. Is
[25:00] Speaker 1: there a way around that. I mean, firstly, is that
[25:02] Speaker 1: an actual problem I've just identified, and yeah, do you
[25:04] Speaker 1: have any view on how that can be addressed.
[25:07] Speaker 2: I think it is a problem. A lot of people,
[25:10] Speaker 2: when working with climate adaptation, point to this problem that
[25:15] Speaker 2: we have a hard time identifying bankability. We have a
[25:18] Speaker 2: hard time assessing when a project is bankable. Part of
[25:21] Speaker 2: the reason is, like you've identified a lot of these
[25:25] Speaker 2: protective infrastructure projects like a seawall, they don't come with
[25:29] Speaker 2: a revenue stream, So how do you make your money
[25:31] Speaker 2: back if there's no revenue associated with it. There's just
[25:35] Speaker 2: avoided lost revenue. So I think that is an issue
[25:39] Speaker 2: that many people are working on, and that's why more
[25:43] Speaker 2: data helps and more analyzes into how all of these
[25:47] Speaker 2: things are connected that really does help what you've described.
[25:51] Speaker 1: It really rings a bell for me because early on
[25:54] Speaker 1: in my benf career, my era of research was energy
[25:57] Speaker 1: efficiency and the kind of companies selling energy efficient products
[26:02] Speaker 1: and services trying to go to a building and say,
[26:06] Speaker 1: you know, we'll put in new windows or do all
[26:09] Speaker 1: sorts to reduce your energy bill and it's a total win.
[26:12] Speaker 1: The thing they always said was the struggle is that
[26:14] Speaker 1: although you can show that the financial benefit is real
[26:17] Speaker 1: on paper. In practice, there's no actual revenue stream. There's
[26:21] Speaker 1: a revenue stream versus a counterfactual where you didn't make
[26:24] Speaker 1: the investment, and that quickly evaporates in most sort of
[26:28] Speaker 1: fiscal analyses. Now in this case, it's even more complicated
[26:32] Speaker 1: because the counterfactual is something that might happen. I mean,
[26:36] Speaker 1: you don't invest in energy efficiency in a building, then
[26:39] Speaker 1: your energy bill will definitely be higher. If you don't
[26:41] Speaker 1: invest in climate resilience, you might be vulnerable to an
[26:45] Speaker 1: extreme climate event if it happens. So it's a possibility
[26:49] Speaker 1: within a counterfactual. So I guess answers on a postcard.
[26:54] Speaker 1: If anyone has a smart financing structure that can deal
[26:58] Speaker 1: with that and make it palitable, we can all agree.
[27:01] Speaker 1: You know, I'm not saying we do all agree, But
[27:02] Speaker 1: even if we were all agree that this makes sense,
[27:05] Speaker 1: it's still going to be hot.
[27:06] Speaker 2: I will say that we do have a little bit
[27:08] Speaker 2: of a sliver of light on what the counterfactual looks like.
[27:12] Speaker 2: Because we are starting this sliver of.
[27:15] Speaker 1: Light in this podcast. We are I want to hear
[27:18] Speaker 1: all about it.
[27:18] Speaker 2: We are starting to become much better at accounting for
[27:22] Speaker 2: the economic losses from climate damages alone. Our colleagues at
[27:28] Speaker 2: Bloomberg Intelligence do a great job of this. They have
[27:30] Speaker 2: a climate damages tracker globally and I believe by their
[27:34] Speaker 2: last accounting in twenty twenty five, globally we lost one
[27:39] Speaker 2: point three trillion dollars based on climate induced damages. So
[27:45] Speaker 2: there's a little bit of your counterfactual, right, and that's
[27:48] Speaker 2: kind of in a best case scenario, thinking that climate
[27:51] Speaker 2: change doesn't get any worse than it does today losing
[27:54] Speaker 2: one point three trillion dollars globally per year. And then
[27:57] Speaker 2: the other point is, I think when you bring up
[28:02] Speaker 2: adaptation and resilience investments, people tend to think about these huge, huge,
[28:08] Speaker 2: mega multi year projects, and in some cases that might
[28:12] Speaker 2: be needed, but there's also a wide variety of other technologies,
[28:18] Speaker 2: other solutions that can help and can make a difference
[28:21] Speaker 2: that are much easier to implement, cheaper to invest in
[28:25] Speaker 2: and fund than those types of projects. Right, there's a
[28:29] Speaker 2: lot of science behind how beneficial early warning systems are. Right,
[28:34] Speaker 2: if we can get a couple hours prior notice to
[28:37] Speaker 2: how bad a flash flood is going to be, or
[28:39] Speaker 2: a storm or a wildfire, that saves a lot.
[28:43] Speaker 1: That's a really interesting and I think important point, because
[28:46] Speaker 1: you know, when I was saying, what I was saying
[28:48] Speaker 1: is under the assumption that we're talking really big investments
[28:52] Speaker 1: that you know are going to be paid for over many,
[28:55] Speaker 1: many years. But what you're saying is there's actually some
[28:58] Speaker 1: pretty easy stuff that can be done so long as
[29:00] Speaker 1: there's the will to do it. I think.
[29:02] Speaker 2: So there is your glimmer of hope.
[29:04] Speaker 1: Well, let's end on that positive note that although there
[29:08] Speaker 1: is a stack of very wobbly dominoes waiting to fall,
[29:14] Speaker 1: there is plenty that can be done to fix them
[29:17] Speaker 1: in place and maybe mitigate or even avoid this potential
[29:22] Speaker 1: cascade of consequences from climate change on that the US economy,
[29:26] Speaker 1: and I'm sure that there's equivalent stories in other countries
[29:29] Speaker 1: as well. Dania, it's been an absolute pleasure having you
[29:32] Speaker 1: on today, and it really is a really new frontier
[29:36] Speaker 1: of research for US at bn EF, And so those
[29:38] Speaker 1: of you who do have access, I really strongly recommend
[29:41] Speaker 1: you check out Dania's research on this topic because I
[29:44] Speaker 1: think this is going to be a really important conversation
[29:47] Speaker 1: going into the future. So Dania, thank you so much.
[29:49] Speaker 2: Thanks Tom The Pleasure.
[29:59] Speaker 1: Today.
[30:00] Speaker 2: Episode of Switched On was produced by Cam Gray with
[30:03] Speaker 2: production assistance from Kamala Shelling. Bloomberg NEIF is a service
[30:07] Speaker 2: provided by Bloomberg Finance LP and its affiliates. This recording
[30:10] Speaker 2: does not constitute, nor should it be construed, as investment
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[30:16] Speaker 2: investment or other strategy Bloomberg. A NEIF should not be
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[30:23] Speaker 2: Neither Bloomberg Finance LP nor any of its affiliates makes
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[30:30] Speaker 2: of the information contained in this recording, and any liability
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